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Europe The Morning After

 May 08, 2012 12:24 PM


(By Fisher Investments) When the world woke Monday, France had a new president and Greece had a hung parliament—and many wondered what this means for France, Greece and the eurozone.

France

With 52% of the vote, Socialist François Hollande unseated Nicolas Sarkozy. While most commentary has centered on economic policy—particularly Hollande's pledges to tax high earners at 75%, increase public investment and renegotiate the EU's fiscal compact—for many voters, the contest seemingly came down to fatigue. Polls seemed to indicate voters saw Sarkozy as aloof and out of touch, while Hollande was likable and relatable, suggesting he didn't win on policy alone.

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Which he may be thankful for, considering legislative victories may prove tough. While his Socialist Party controls the Senate, they may not wrest the National Assembly majority from Sarkozy's center-right UMP next month. Hollande's second-round margin was about half what polls predicted, suggesting UMP could do all right—especially once freed of Sarkozy's stigma. The far-right National Front, which captured 18% two weeks ago, could win enough seats to form a coalition with the UMP. Or the Socialists could end up in a coalition with the Communists and/or centrist Democratic Movement. Markets could also signal their displeasure with some of the more onerous measures—sovereign yields likely won't cheer legislation that could harm France's fiscal standing. And higher yields could jeopardize Hollande's goal of a balanced budget by 2017, perhaps forcing him to pause.

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Hollande's already apparently moderating on the eurozone stage. After taking several shots at German Chancellor Angela Merkel during the campaign, Hollande's making nice—they've chatted and plan to meet soon, and both claim commitment to a strong Franco-German partnership.


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