Today, Mr. Hollande will officially become the next French president. He will then announce his government. While it will only be a temporary government for up to one month until the French Deputy elections it will nonetheless send a message regarding the direction of French economic policy and its relationship with the European project for the coming five years.
It is worth remembering that being in the opposition over the past ten years, there are numerous influences inside the socialist party, from the left wing to the centre.
Mr. Hollande is by nature more toward the centre but the names of the Prime and Finance Ministers will be closely watched. As we already wrote in various previous publications, for the Prime Minister, the two main candidates according to the French press would be Mr. Ayrault, the current leader of the socialist party at the French Deputy assembly, and Mrs. Aubry, the current leader of the socialist party itself.
Mr. Ayrault is like Mr. Hollande, more on the centre side of the party, while Mrs. Aubry is seen more on the left wing. For the Finance Minister, Mr. Sapin also appears to be the frontrunner. He was already in charge of French budget policy in the socialist government in the early 1990’s and was also a member of the Monetary Policy Committee of the Banque de France in the mid-1990’s. So, his possible nomination should help to give some guarantee to financial markets.
This coming month, the focus will be for Mr. Hollande to secure a clear majority at the Deputy assembly in the June election. So, do not expect any strong actions or negotiations with Germany regarding the current debt crisis in the short term, a situation which will not be very helpful to ease the current risk aversion.
The victory at the presidential election offers in general a good dynamic going into this election. The French, by nature, are legitimist and appreciate clarity, meaning that they are tempted to give all the power to the men they just freshly chose.
Early polls for the first round of the deputy election appear to confirm this view. Indeed, it seems that the socialists would garner around 30% of the vote and be the only party on the left to qualify for the second round while, the right will again be split between the conservative and the far-right.
Also, the threat of Mr. Hollande being forced to adopt more left wing positions because of the pressure from the communist party appears low for the moment with this party gathering less than 10% of the vote. To sum up, this appears to be a best-case scenario for Mr. Hollande.
However, any changes in this balance of power will be worth watching over the coming weeks. Given that the participation rate for the deputy election is much lower than for the presidential election, it tends indeed to favour smaller party organizations.
So far, the prospect that Mr. Hollande will be able to deliver a centre-left economic policy and a pragmatic position with Germany appears to be backed by the market.
However, the new French president already indicated that, while he will support the delivery of a clear fiscal program for the coming five years to show his commitment toward budget deficit control, he is against implementing a so-called “golden rule” in the French constitution. He also indicated the need to add to the fiscal pact a deeper commitment in favour of growth policies.
So, in a sense, he is already asking for some compromises from Germany, meaning tighter budget control in exchange for stronger solidarity right now!