New French president faces tough test in reviving economy
The Kansas City Star
French President Nicholas Sarkozy came into office pledging to reduce government bureaucracy, boost the rewards for work and restore France’s economic vigor. Then came the financial crisis of 2008 and a prolonged slump, and voters Sunday decided they’d had enough of the mercurial “Sarko.”
They handed power to Francois Hollande, the first Socialist to hold the presidency since the close of the Mitterand years in 1995.
Hollande’s idea for restoring growth emphasizes higher taxes on the rich and classic pump-priming, meaning government-funded stimulus. But he may find that following through on a big spending surge tougher than he expects.
The financial markets will have a vote. If they sense that French spending is veering out of control, they could raise interest rates to punishing levels.
Then there’s the matter of how Hollande would raise spending in the first place. The European fiscal pact calls for the opposite: Countries must cut costs with the goal of reassuring debt markets, thus keeping interest rates relatively tame. Unfortunately for Hollande, German Chancellor Angela Merkel says the fiscal pact “is not up for negotiation.”
Hollande doesn’t seem to have a great deal of running room, especially with a narrow victory margin of 51.62 percent.
Sunday’s election results in Greece may be the bigger worry. The outcome left Greek politics even more fragmented across a broader political spectrum. Radical parties at each extreme made gains, while the two major parties failed to gain a majority and must now try to form a government by joining with smaller parties.
That increases the risk that Greece could ultimately leave the eurozone, which means the elections may well revive the crisis-a-week atmosphere of several months ago. At this point, Europe seems fated to run a perpetually losing race on a treadmill of debt.