What Hollande’s Win, Sarkozy’s Defeat Mean for Future of Europe’s Economy

Unnerved by fiscal austerity measures, French voters on Sunday elected Socialist candidate Francois Hollande to the presidency — rebuking sitting leader Nicholas Sarkozy. Jeffrey Brown, The New York Times’ Elaine Sciolino and The Globalist’s Stephan Richter discuss the prospects of major policy shifts on the horizon.

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    And for a closer look at all this, we turn to Elaine Sciolino, Paris correspondent for The New York Times and author of "La Seduction: How the French Play the Game of Life," Stephan Richter, publisher and editor-in-chief of "The Globalist," a daily online magazine covering global economics, politics, and culture, and Charles Kupchan, international affairs scholar at Georgetown University and the Council on Foreign Relations.

    Elaine, I wasn't sure how to pronounce the seduction part of your book, but hopefully I got it right.

    Help us first understand what's just happened in France. How much of this was a repudiation of Sarkozy and how much about austerity?

  • ELAINE SCIOLINO, The New York Times:

    Well, there were three reasons why Sarkozy lost.

    First, he was swept up in this anti-incumbent mood that has overturned so many governments in Europe, sort of kick the bums out. He had come into office promising a rupture, promising change, promising, if you work harder, you're going to earn more. It obviously didn't happen.

    So he was a victim of the same phenomenon that has hit the rest of Europe. But the other thing is that the right has been in power in France for 17 years. And so he suffered because his party had just been — been seated at the Elysees for so long. But the main reason was nobody liked Sarkozy.

    He never learned how to seduce. He didn't like the French people. He didn't like going out into the country and touching voters, you know, petting cows, just shooting the fat with the electorate, with farmers, with workers. He insulted everyone. He also ran the government in a way that he was always very frenetic. And people didn't trust him. And they voted for the guy who said, I'm Mr. Normal.


    Well, so, Stephan Richter, you take what happened in France, you take what — you look at what happened in Greece, you see what's happening in other countries, the question now is, to what extent this whole austerity model is now under siege, behind us. Where are we?

  • STEPHAN RICHTER, The Globalist:

    It would be nice if you have an election, and that fixes it.

    The aspiration of the people in democracies is a very important thing. But no-confidence votes in the modern democracy of today in the world of globalization are no longer coming from national parliaments, as much as we have seen electoral turnovers, but from financial markets. And that really limits also what Francois Hollande can do.

    He has a new bond issue that he needs to sell coming up very soon. And that's the new normal, that you either sell it at a good rate, or you sell it at higher interest, which means you have even less money available for social measures to protect the weak and so on.

    Money doesn't grow on trees anymore in Europe. You have to get it from financial markets. Governments are tapped out. And to say that we need a growth plan, in addition to austerity, I think the German government would totally agree with that. I think it's a misnomer, because even under the previous Chancellor Schroeder, Angela Merkel's predecessor, who did as a Social Democrat, left-of-center man, very much like Francois Hollande, a lot of fiscal consolidation, he added labor market reforms.

    He did it in time. That's why the German economy stands in pretty good shape. They had the wind of the global economy in their back. That was lucky, like with the Canadians, who are in good shape. But just because Hollande comes in, he can say whatever he wants, he needs to change things surgically in France that still need to be improved.

    Every nation around the world has to improve. The Indians do it. The Chinese do it. We all have to do it.


    Well, and, yet, Charles Kupchan, the voters have spoken in many countries now rejecting austerity. So to the extent the bond market speaks, then there are voters. So where do you see this whole austerity movement?

    CHARLES KUPCHAN, former National Security Council official: I think Hollande has to move more than Stephan suggests.

    I agree with you that he doesn't have a huge amount of room for maneuver because he has got the Germans saying, no, we're going to go the austerity route. He has got the markets saying, bring down the debt, reduce government spending. But you have had I think a center — a shift in the center of gravity in Europe toward governments that want more growth.

    And it's not just because you have a center-left government in France. It's because you have lots of governments that have fallen. And so my expectation is that Hollande is going to have to go to his electorate and say, I'm going to do X, Y and Z that will stimulate the economy, that will create jobs.

    And he really has to walk a tightrope because he can't go so far as to cause the credit markets to devalue French debt, because then he will have a problem with solvency. And he can't go too far with Merkel because Angela Merkel has essentially wedded her legitimacy as chancellor to running a tight ship and fiscal responsibility.

    And so what I expect is some work-arounds. Keep the fiscal pact intact, but let's use the financial bailout mechanism or the European investment bank to get some new funding, to pump — prime the pump.


    Well, Elaine Sciolino, when Hollande has been saying that he wants to give a new direction to France and to Europe, in fact, is it clear what he means, and how much pressure will he be under in France to abide by some of these campaign promises?


    Well, he ran a brilliant campaign because he got away with promising growth and less austerity. And he never laid out a concrete, detailed economic plan, except basically to tax the rich.

    I mean, he said, for example, that he wants to tax anyone who makes more than a million euros a year at a 75 percent tax rate. Well, you know, does this mean that the whole French soccer team moves to Monaco, and Monaco wins the World Cup? People are already starting to talk about leaving France, the way they did when Francois Mitterrand was first elected president.

    This is a guy who is anti-rich. He doesn't own his own apartment. He probably made no more than $100,000 a year in 2010 in income. He has actually said, I don't like the rich. And he has also said that, you know, every country has a soul, and the soul of France is equality. He is really dedicated equalizing the wealth base in France.

    I mean, this is quite revolutionary, after so many years of rightist rule. And he's got a lot of different things to balance. He doesn't even have his cabinet in yet. And we will have to see whether he goes the route of naming someone like Martine Aubry as his prime minister, who is very much to the left of Francois Hollande, who talks about militants in the party, who talks about combat, who brought in the 35-hour week, which is. . .




    . . . which has really wreaked havoc with the workplace.


    Stephan Richter, do you want to pick up on that? You're saying the bond market is ruling and politics aside? What. . .


    And I don't care about the bond market personally.

    In the end, I care about that we as a society, no matter where we live, we have to make sure that we make our own books balance. Right? We need to finance retirement. We need to provide health care and all these things.

    And we had a 40-year economic model where we always thought the politicians were going to promise us something. We kind of knew that it wouldn't add up. But we said, okay, you're the politicians. You're the leaders. You must know. That's the jig that's up.

    Hollande overpromised. And he has a very tight margin of maneuver, because if he goes the Martine Aubry way, the financial markets are going to snuff him out in no time and we're going to have a repeat of 1981 and Francois Mitterrand, who had a rosy life for the French, in keeping with a big turnover away from the Conservatives — we can understand all that — against inequality and so on.

    But a year-and-a-half later, he had to completely reverse course. And it's not a German thing. It's just fixing France and making sure that France finds its own future to the — path to the future.


    And, Charles Kupchan, finally, what's the U.S. watch for now and the implications of this possible new direction?


    Well, I think that Obama has always wanted on the other side of the Atlantic more stimulus and less austerity. He may get that in Hollande.

    But he also has a downside risk. And that is that Hollande's policies lead either to paralysis because he disagrees with Merkel, or you get bets against the French in the bond markets and you get a new fiscal crisis, and just as Obama heads into reelection, that downturn starts washing over here.

    And then I think there is the bigger issue at stake. And that is, where are we in the European project of integration? And these elections suggest that Europe is in a very fragile and in a very vulnerable state, not just economically, but the whole question of whether Europe is coming together as a union and projects its power in the world.


    Or not.


    Or not. The U.S. needs that partner. Right now, it doesn't look like it's going to get it.


    All right, big questions for the future.

    Charles Kupchan, Stephan Richter, Elaine Sciolino, thank you both — thank you, all three, very much.