The Socialist Who Can Rattle the Global Economy

At the end of a week of bad news across Europe, the French have handed the Continent another cliffhanger: In the first round of polling for the presidency on Sunday, incumbent Nicholas Sarkozy trailed his Socialist Party challenger, François Hollande. This means a runoff, as the French system works, and it is scheduled for May 6. Hollande is currently the favored competitor.

A Socialist inhabiting Élysée Palace? We have not had a Socialist president in France since the days of François Mitterrand in the 1980s, and there was neither a fiscal emergency nor a euro to manage at the time. What could be worse in this fraught moment of the Eurozone crisis, when austerity and structural reform are more or less the accepted gospel across the Continent and when the Paris–Berlin alliance has proven crucial to holding the European Union and its currency together?

Plenty is the short answer. For one thing, markets and investors are likely to over-react drastically in coming days because Hollande, who is center-left and very European in his thinking, has a cartoonishly anti-business image. Market turmoil will be unnecessary and unfortunate. For another, fears that a socialist-led France will pull apart the work of the last six months are more worrisome than a Hollande presidency. It is worth asking at this point: how strong is europe if it cannot manage a social democrat as head of one of its core countries?

True, certain things—big things—might change if Hollande makes it through the May 6 round on top. He wants to renegotiate the E.U.’s December fiscal pact, one of Sarkozy’s more considerable accomplishments, to tilt it more toward growth and somewhat away from pure austerity. At this point, this is beginning to look like simple common sense. There are more voices every day saying that the austerity-alone strategy is simply not working.

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Hollande also wants to develop a new mandate for the European Central Bank, loosening its traditional fiscal discipline in favor of a more inflationary lending policy. In a word, he is pro-stimulus.  All of this puts him at odds with the conservative Sarkozy, whom the French have nicknamed “l’Americain” for his dedication to straight-up-and-down neoliberal economics.  But it is hardly likely that Hollande will get his way in all of this—or any of it. He will be a voice, an influence. And let’s face it: Hollande’s policies put him in line with many millions of European voters. A moment such as this one was fated to arrive.

Why the near panic as the results in France came in late Sunday? Consider the past week’s developments alone:

• Miguel Ángel Fernández Ordoñez, the governor of the Bank of Spain, announced that Spain has fallen back into recession after a modest blip upward last year. At an auctionof 2-year and 10-year bonds on Thursday, Spain got an interest rate of 5.7 percent; in the aftermarket later in the day, yields went to 5.88 percent. At the last auction, on April 4, the interest rate was 5.3 percent. This is very expensive money.

• Moody’s Investors Services, the ratings agency, announced that it is planning to downgrade 114 European banking institutions in 16 countries within a couple of weeks. This follows a review that began in February. Apart from the cost pressures this puts on banks as they fund themselves, this is an indication of just how deeply Europe’s crisis involves its banking sectors and not just sovereign borrowers.

• Over the weekend, the Netherlands announced that its national austerity talks fell apart when a right-wing populist group, the Freedom Party, refused to support a package of measures intended to save $18 billion — taxi fare compared with the problems of other nations. Why were these talks being held?

Well, here’s the monumental irony: The Netherlands has been a strong supporter of the Franco-German fiscal pact enforcing discipline across the E.U., but it missed its own E.U.-mandated budget targets. Now the doctor can’t take his own medicine.
The prospect that François Hollande might be France’s next president comes at an absolutely crucial moment. The diet of austerity and more austerity is reaching its limit when one of the nation’s urging it cannot handle its own austerity package. In this respect, Hollande will represent an alternative voice in Europe for the first time since the crisis began three years ago.

This does not mean everything has to fall apart. True, the odd but effective relationship between Sarkozy and German Chancellor Angela Merkel will be no more. But if the euro, and ultimately the E.U., depend on straight-line political and policy agreement in core Europe, something is amiss, for that is an unsustainable dream. Hollande seems to understand this. He has already announced that his first foreign visit after a May 6 victory would be to Berlin. Mrs. Merkel is reportedly steeling herself.

Hollande, far from any ridiculous notion of revived Gaullism, is strongly European. Look at his policies: He wants a strong, pro-growth regime in Brussels. His victory would also mean that Madrid, Rome, Athens, and Lisbon will have someone else to talk to when they head north to discuss the right combination of discipline and stimulus. And in the best of outcomes, it means these capitals will have support in core Europe if they seek to develop alternative strategies to even out the burdens of this crisis, get economies going, and lower obscene levels of unemployment.

Europe has needed this kind of debate from the first. There has been an unhealthy degree of consensus throughout this crisis. Nothing wrong with a social democrat at the table now.