Sarkozy’s Worst Nightmare

October 27, 2011
(Hudson)Media_httpdisciplinea_mlauhIn less than six months from today, on 22 April 2012, France will hold the first round of its next presidential elections.

For Sarkozy, the birth of a daughter last week was a good PR moment, but it is doubtful whether she will celebrate her first birthday in the Elysée, the French presidential palace. France is going through the worst financial crises of the last fifty years. The country seems to be teetering on the brink of financial catastrophe. French banks have invested so heavily in government bonds from nearly bankrupt countries, such as Greece, that they are at risk of collapsing themselves. As a result of its exposure to Greek sovereign bonds, a Franco-Belgian bank, Dexia, has already collapsed.
Later this week, the countries of the eurozone, the group of 17 nations which use the euro as their common currency, are likely to decide that the banks will have to take a 50% loss on their Greek sovereign bonds. This could be devastating for a number of French banks, and devastating for the French government, which, under pressure to bail out or nationalize the French banks, risks losing its triple-A credit rating. If that happens, it will certainly be devastating for Nicolas Sarkozy and his chance of re-election next Spring.
French domestic politics and Sarkozy’s need to safeguard his re-election are the key to understanding European politics. First of all, Sarkozy needs the approval from the eurozone countries that the zone’s financial emergency fund, the EFSF, will assist banks which have run into difficulties. Without such assistance, France will have to help out its own banks.
Second, Sarkozy needs to ensure that the EFSF has a direct financial lifeline to the printing presses of the eurozone’s central bank, the ECB. ECB involvement is important for Sarkozy: the EFSF relies on guarantees provided by the stronger countries of the eurozone — the six eurozone countries with a triple-A credit rating: Germany, France, the Netherlands, Austria, Finland and tiny Luxemburg. International credit agencies have warned that they will likely downgrade France’s rating if the burden on the EFSF become too heavy.
Sarkozy needs some sort of ECB involvement in the bailout plans for weak countries and banks to relieve the pressure on the French state. Germany, however, is opposed to far-reaching ECB involvement in bailing out countries and banks. The tension between Sarkozy and German Chancellor Angela Merkel has increased. Merkel is under pressure from her own parliament on the one hand and from Sarkozy who is fighting for his own political survival on the other hand. His,survival depends on his ability to postpone a major European crisis until after May 6, 2012, the second and final round of the French presidential elections. But time seems to be running out — for the euro as well as for Nicolas Sarkozy.
Meanwhile, the major French opposition party, the Parti Socialiste, has appointed its presidential candidate. Until last May, Dominique Strauss-Kahn, the Managing Director of the International Monetary Fund, was generally expected to become the PS candidate. Strauss-Kahn was popular and as head of the IMF, the institution which is helping the eurozone to overcome its problems, many ordinary Frenchmen were confident that he would be able to do a better job than Sarkozy. A spirited episode with a New York hotel maid, however, ended Strauss-Kahn’s IMF career as well as his prospects in French politics.
The Socialists have now picked the 57-year old François Hollande as their candidate. In the second round of the Socialist primaries, Hollande defeated Martine Aubry, the Mayor of Lille and the daughter of former European Commission President Jacques Delors. The first round was a defeat for Ségolène Royal, the Socialist presidential candidate who lost the elections against Sarkozy in 2007. Royal and Hollande lived together for almost thirty years. Although they have four children, they separated one month after Royal’s 2007 presidential defeat when it emerged that, in more Gallic goings-on, Hollande had begun a relationship with a French journalist.
Hollande is barely known outside of France. He is an uncharismatic old-style Social-Democrat who began his political career in 1981 as an economic advisor to Socialist President François Mitterrand. As such, he was involved in the implementation of a plan to nationalize companies and banks. Hollande defends the Europeanization process as much as Sarkozy. According to a recent poll, 64% of the French expect François Hollande to win the second round of the elections against Nicolas Sarkozy.
The big question, however, is whether there will be a second round between Sarkozy and Hollande. In France, the President is chosen in two rounds. Only the top two candidates can make it to the second round. A poll last March found that Sarkozy would be beaten in the first round by Marine Le Pen, the leader of the far-right Front National. Should the poll prove accurate, the 43-year old Le Pen, a twice-divorced mother of three and the daughter of FN founder Jean-Marie Le Pen, would go on to the second round against Hollande. In 2002, Jean-Marie Le Pen knocked Lionel Jospin, the Socialist candidate, out of the presidential race. Le Pen was beaten, however, in the second round by Jacques Chirac.
With the eurocrisis continuing and anti-EU sentiments growing in France, the probability that Marine Le Pen would do well in next Spring’s elections increases. Unlike Sarkozy and Hollande, she is highly skeptical of the Europeanization process and has promised to pull France out of the euro and close French borders to cheap Chinese imports. She is also a less controversial figure than her father, and has the charisma Hollande so utterly lacks.
In 2002, the Socialist Party called on its voters to support Chirac in the second round against Jean-Marie Le Pen. Whether the middle-class voters of the right will be so easily persuaded to support Hollande in a second round against Marine Le Pen is less certain.
Marine Le Pen in the Elysée seems improbable, but with the eurocrisis deepening, Sarkozy’s fear that she could knock him out in the first round of the French Presidential elections next April is also deepening. If Europe fails to save the euro, anything is possible.


Greeced Drachma

June 6, 2011
One World… No Borders? FAIL!
It’s difficult to avoid the impression that the euro saga is gradually building up to a messy denouement. This is the view of a number of commentators ranging from Otmar Issing, the former ECB chief economist, who now says Greece is insolvent and should never have joined the monetary union, and Mario Blejer, the former Argentine central bank president who accuses the ECB of running a Ponzi scheme.
The ruling Greek Socialist Party’s own Maria Damanaki, responsible for fisheries in the European Commission, has put the writing on the wall in true Greek fashion by opining that Greece could return to the drachma unless it reaches a deal with its lenders. via and image via