As Falls Sarkozy, So Falls Europe: The Full Story Behind The Upcoming French Election

Tyler Durden's picture

Just a week ago we brought readers' attention to the fact that Francois Hollande, the Socialist Party candidate who is leading most opinion polls in the French presidential election, was extending his lead; well the lead is growing, to now 58-42 in the second round. In a must-read discussion this evening, George Magnus of UBS points to the significance of the French elections and how Hollande's victory could unleash 'a new wave of instability and uncertainty, and that the relative calm or optimism in financials markets since the turn of the year would prove short-lived'. Specifically Magnus highlights how the politics of Europe could well trump the liquidity of the ECB as the main determinant of the Euro Area's prospects. While not playing down the role of the initial (and forthcoming second) LTRO, the UBS senior economic adviser has grave concerns of the much bigger and less tangible issues of sovereignty and national self-determination that will not only impact Greece (very shortly) but also Germany, France, and the Euro-zone itself. The French election could be a catalyst for Franco-German (Merkande? Hollel?) divisions which 'would not sit comfortably inside the ECB or in the minds and actions of investors' and is evidently an unpriced and under-appreciated risk in global markets currently.


Enter Francois Hollande, Stage Left

George Magnus, UBS

The French Socialist Party candidate for the presidency has recently nailed his colours unequivocally to the mast, with a bellicose approach to the cult of finance and financial firms, a promise to promote state-funded industrial policies and employment growth, including an additional 60,000 teaching jobs and 150,000 subsidised jobs for the young, and a proposal to reverse the recently agreed rise in the retirement age from 60 to 62 years. He intends to continue the programme of budget deficit reduction, but wants to boost state spending by EUR20 billion by 2017, though within the context of largely tax-related measures on banks, higher incomes and wealth.


The presidential contest is focused on both sensitive social issues and France's sense of economic and political vulnerability in a globalised world. This year, for example, China will displace France as Germany's biggest trade partner, while the latter has roughly 5 times as many firms doing business in China. But in many ways, the election is almost like a plebiscite on France's role and future in Europe.


President Sarkozy represents continuity. Francois Hollande wants to renegotiate the current European fiscal compact that was hatched in Brussels in December. At an economic level, he wants more emphasis on economic growth and employment goals, an integrated European energy policy, a bigger agricultural budget, and measures to counter unfair trade competition. But at a political level, his support for more activist ECB monetary and financial policies, the introduction of joint and severally issued E-bonds, and a well-resourced bail-out fund contrasts sharply with the stated position and constraints expressed by Germany, and to which Sarkozy has lent his imprimatur.


If he wins and intends to press his strongly held campaign opinions and intentions, a new rift could open up between France and Germany over how to manage the sovereign debt crisis and in the medium-term, to reshape Europe. Like other Eurozone countries, France feels pressured by the rising power of its large neighbour to the east. After the December Heads of State summit in Brussels, Hollande, and the overtly anti-Eurozone Front National leader, Marine Le Pen, both accused the President of betraying French sovereignty and democracy. If Hollande, as leader of the Eurozone's second economy, were to try and stand up to the German government, he would not only feel he had a popular mandate to do so, but doubtless act as a lightning rod for a wave of sympathy and Euro-angst from other Eurozone countries, such as Italy, which are becoming increasingly worried about the character and consequences of the current German-dominated approach to the Eurosystem crisis.


Italy, in fact, has made a remarkable come-back since Mario Monti took over as leader, pending national elections in April 2013. He was won the trust of Angela Merkel, and the admiration of Europe's political elite. While Italy's economy may be in poor shape, the country has regained respect and seriousness. So much so, that Monti's clever statement at his meeting with the German leader, reported in the Financial Times (16th January), was poignant. After acknowledging Germany's example of fiscal discipline, he said, presumably referring to Italy's recent initiatives to follow suit, maybe others too:


'If this strong movement towards discipline and stability is not recognised as taking place, and a certain approach to financial aspects does not gradually evolve, then there will be a powerful backlash in the countries which are being submitted to a huge effort of discipline.'


This is surely a polite way of saying something to the effect of 'Thank you for your trust. I'm trying to do my best but if you don't help and change your behaviour too - cue another reference to symmetric adjustment - then promising my people perpetual austerity will backfire spectacularly at home, and probably on you too'.


Mario Monti is a serious and talented operator. But having France on board would make a big difference. And then what?


The key point is that any sort of rift between France and Germany, or inconclusive negotiations or weakening of resolve on the current fiscal compact in general, would immediately go down like a lead balloon at the ECB, which would doubtless feel more constrained. Beyond, the central issue would be the reaction and behaviour of Germany, and Angela Merkel's government in the face of a French agenda, key components of which would be politically difficult and resisted. German national elections are, after all, not that far away, in the autumn of 2013. Would Germany accommodate France and cross more red lines, accepting an implicit demand for higher inflation as part of balanced economic adjustment, and giving in on matters of fundamental political and constitutional significance to the Federal Republic? Or would it dig in its heels, deeming French demands to be an unacceptable intrusion into its own sovereignty and democratic processes?


There is much at stake here. For financial markets, the French elections are one of Donald Rumsfeld's known unknowns. Sarkozy could yet win, sustaining the leadership status quo, but not really clearing up any of the current imponderable or impossible challenges to the future of the Eurozone. But if Hollande wins, the difficult progress towards European fiscal integration, including the building of firewalls, could become mired in new arguments, or stall. This would have important consequences for Europe, and not least for the newly pro-active ECB, which would have reason to doubt that politicians were fulfilling their pledge to create permanent fiscal discipline.

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ChrisFromMorningside's picture

Watch out for Marine Le Pen. Under her father's regime, the FN was primarily anti-immigrant. Marine has toned down the anti-immigrant rhetoric and is waging a campaign against the financial sector and the central bankers and is gaining a lot of steam. It's possible she could beat Sarkozy for second place and end up in the runoff against Hollande. One way or another, this election definitely complicates the ongoing Euro deleveraging, because Sarkozy is not walking away with any kind of mandate.

Coffin Dodger's picture

Not everyone sees it the way banks see it:

"On this subject, here a new example of Euro misinformation published by MarketWatch on 01/09/2012: the columnist, David Marsh, tries to give credit to the idea that the spring 2012 French presidential election will be more bad news for the Euro by explicitly stating that François Hollande is an Eurosceptic. As everyone knows in France, François Hollande is, on the contrary, a pro-European and fiercely pro-Euro which leaves only two options relating to MarketWatch/Marsh: either they don’t know what they are talking about, or they are deliberately lying. In both cases, that throws some light on the value of the opinions of the major US financial press on the Euro and its future" (Note 1)

lolmao500's picture

Yep. Whoever says that Hollande is against the EU doesn't know squat about French politics.

Coffin Dodger's picture

ZH quote from above - "George Magnus of UBS points to the significance of the French elections and how Hollande's victory could unleash 'a new wave of instability and uncertainty, and that the relative calm or optimism in financials markets since the turn of the year would prove short-lived"

Oooo, that's really scary talk. Since when did ZH start believing the words of snake-oil salesmen that want to fuck you over?

Coffin Dodger's picture

The more I look in to this piece of trash written by Magnus, the more obvious it becomes as a bank propoganda piece:

"President Sarkozy represents continuity" - yeah, suits you just fine, eh?

"Italy, in fact, has made a remarkable come-back since Mario Monti took over as leader" - ORLY?

"Mario Monti is a serious and talented operator." - being a GS alumni, yes, I suppose he would be, in your eyes,

"if Hollande wins, the difficult progress towards European fiscal integration, including the building of firewalls, could become mired in new arguments, or stall"

The banks are shit-scared of this Hollande guy winning.

Sandmann's picture

David Marsh isn't credible. He used to be FT Correspondent in Germany then fancied himself as a banker with Hawkspoint but he is simply a journalist/PR man at heart with no real analytical skills

westerman's picture

It is time to leave the financial dump behind us and build a new economic system. Globalism/communism/capitalism has failed. Nationalism is the ideology of the future. We need local economies that are owned and run by local people. We need a strictly regulated banking system and the gold standard. I would vote for Marine Le Pen.

pine_marten's picture

But we might start fighting one another then.  Better to make everything fair for all and have peace.  (sarc)

Grimbert's picture

On TV a couple of weeks ago they had a clip of an old Pathe newsreel describing the then French prime-minister.

Something like '... and his fondness for frogs' legs makes him technically a cannibal.'

I'm trying to find the quote - it was on



Grimbert's picture

I think Sarkozy is more likely to be beaten into third by Marine Le Pen, with a 2nd round between her and Hollande. She promises a return to the Franc which is popular with many.

whateverwhatever's picture

The most prominent (notorious?) far-rightist/fascist parties in eurozone countries have generally moved from anti-immigrant rhetoric to anti-euro/restore legacy currency rhetoric. The FN is little different than the PVV in the Netherlands. European fascism is all about pandering to the angst of the day, coherent economic plan be damned.

Marine Le Pen isn't going to get the silver, simply because the FN "polity" can't stick together on anything except anger.

Benedict Farse's picture

What European leader has Greece by the short and curlies? Angela Merkin.

Sandmann's picture

You couldn't be more wrong. Greece holds the fate of Angela Merkel in its hands as the woman who destroyed Germany

falak pema's picture

If I were Angela I would bunga bunga furiously before being labeled as the woman who... but then I didn't major in physics in University, just minored. Quantum financial debt infested lumps make for bad vibes on exuberant humpy rides. Red sails into the sunset!

Colonial Intent's picture

"no tyler, the gun is in my hand"

Benedict Farse's picture

Yeah fair enuf - Rewrite: Greece to rename Angela Merkel to Angela Merkin as they have her by the short and curlies. 

GoldenGal's picture

And after you sell your gold there are some great deals on to  for mediteranean cruises to Greece.

Bohemian Clubber's picture

This is all batshit. The french elections have become as ridiculous as the Rep/Dem US bipartisanism with their UMP/PS political parties. Hell, both sides agree with this fucked up system and won't change nothing, certainly not banking rules... Beside socialists in France are particularly well known to be more pro Israelian than their counterpart...  just sayin...

Whoever wins it won't change crap, move on nothing to see here...


Bossuet's picture

Discours sur la crise de l’Union européenne d'Emmanuel Todd


Une autre référence à 1940 :

"L’explosion de l’euro va être la délégitimation de tous les connards qui l’ont fabriqué !", lance-t-il. Le principal bienfait de ce cataclysme sera, selon lui, un renouvellement des classes dirigeantes françaises, comme en 1940... Mais cette fois-ci, le coup de balai ne devrait pas nécessiter une guerre sanglante. L’avenir s’annonce donc radieux !"


falak pema's picture

Emmanuel Todd makes sense, so would you if you said it like Shakespeare, in his tongue if not with his brilliance.

Not that I don't understand Molière!

Bossuet's picture

Enfin, une fois encore, Hollande n'est pas socialiste. C'est un centre "droite/gauche" bon teint. La preuve en est que les recettes de Hollande sont assez timorées et proches de celles de la droite. Elles ne sortent pas du cadre. Libre à certains gogos de se laisser abuser par les pièges du langage. Au fait, Papandréou et Zapatéro étaient-ils socialistes ?

Un extrait d'un excellent texte de Paul Jorion : "Cet effet pervers, Sismondi (1773 – 1842) l’avait déjà dénoncé dans les années 1820, proposant que tout ouvrier remplacé par une machine bénéficie d’une rente indexée sur la richesse créée désormais par celle-ci. Une proposition ancienne qu’il faudra, un jour ou l’autre, réexaminer."

DrunkenMonkey's picture

Hollande promet de creer plus de fonctionnaires pendant que Sarkozy adopte le maske de Besancenot. Qui dit demagogue ?

falak pema's picture

Of France and Pax Americana :

The upcoming election in France is portrayed as a major potential turning point in the current financial crisis of which the Euro currency battle is the nexus; just as Greece is the first visible domino in what could become a major bank run that none can control. UBS being a bank is obviously expressing the macro fallout of priority change in a major economy of Euro zone like france.

Lets just step back and understand what's what within the lens frame of the ZH construct; on which there seems to be consensus in this forum :

1° The current Banking crisis and its corollary the sovereign debt crisis is unsustainable if left in the hands of the banking cabal. Hollande is of this viewpoint, whence his strong words on "unbridled finance" being his, and his country's, main adversary. How do you change this situation that will bring down the real economies of Euro zone? His solution : kill the financial beast's control of real economy by strong government regulation, enforce joint and several financial control over ECB actions, through fiscal convergence, more budget discipline at national levels and issuing eurobonds. In this respect he is on the same page as MErkozy. Merkel has said in her own words that she made a mistake in 2009 by imposing a dictat of each country having to set up its own defenses to stave off the consequences of the sub prime meltdown. She now recognises that she underestimated the consequences of banking actions in all nations to stave off their own private meltdowns and the problems this has created in conjunction with sovereign knee jerks to kick start national growth through huge deficit spendings at each country level; all the while the private banking sector was already drowned in tsunami debt of its own through sub prime/derivative margin shenanigans. That is what created current scenario now in total risk on for Eurozone. The German sentiment now is its too late for Germany to leave the Eurozone. So she is buying at this late stage a structured and disciplined deleveraging of Eurozone sovereigns and banks, under the Euro umbrella. All collapse of Euro construct is VERBOTEN on her books. This is Merkozy sentiment 100%. There is no plan B on this issue. Just as there is no plan B in FED/O'bammy land other than to print and dump to infinity! We are there! 

2° ZH has recognised this uncontrolled debt mountain play and build up on both sides of the pond, accelerating since 2009 in the aftermath of meltdown and has concluded to the inevitability of deleveraging being necessary before any real economic growth can occur in first world economy. TPTB refuse to see this. Merkozy being on this page, all the while they have NO SOLUTION for Euro zone runaway, the current momentum is kicking the can via CB construct with ECB totally on board the FED strategy. 

How will Hollande change this? 

3° His take is based on his public statements and program that he will oblige Merkel to add to her current austerity program a Krugman type infrastructure spending construct across Eurozone to create Keynesian growth in economies; all the while ensuring that SELECTIVE deleveraging occurs. In this he is probably on the same page as O'bammy and Ben.

4° Will Merkel balk at this? Probably. She has no stomach for Krugman type Kenynesian strategy. NONE. If she does balk, Hollande will try and maneuver with Italy and Spain to create a Keynesian pole and fight for more Marshall plan type Euro investment. If the economic reality goes to more evident pain and BRIC strategies dry up the liquidity pump in first world, imposing further budget cuts and restraint, Hollande's Keynesian bravado will peter out into vain words. And Hollande will tell his people "Europe won't buy it sorry. We'll have to wait till election results in Germany in 2013!"

So nothing will get done on this front. The Bank controlled can kicking will continue and EUro zone will drown a little more into unsustainable debt.

Bottom line : Hollande's program will have NO EFFECT on Euro economic reality. Never in the course of human events has a French socialist government's policies resolved anything. And that is not going to change. I stand corrected, some say that Blum's Front Populaire in 1936, neglected french defensive spending and led to France's debacle; as all political effort was spent in creating social upgrading and Union inspired labour oriented legislation like one month's free paid holidays. Its debatable, if this hopium and euphoria fueled the Furhrer's resolution to go deep into Spain's civil war support and subsequent Anschluss. But it certainly did nothing to prevent it. So it created a bad precedent in Europe's convoluted history.

The reality is, this is TODAY, an international Oligarchy construct; it will stay so and it will live and die on its own momentum, controlled by crazy banks and surrogate governments, rich multinationals with off shore accounts and the happy few who screw bunga bunga crazy in the Caymans. So life goes on until the empire falls. 

Don't make Hollande into Gabriel Princip. He is not. Not that a new Gabriel Princip won't appear one day on world stage...but that is another Anonymous story today. Play on Sisyphus, pax americana rules and UBS blows bubbles of banksta spin, like it should. Its neck is on the line and will stay so whatever happens in France.


arcos's picture

...throwing out Greece from the Eurozone would be very bullish for Euro in MHO. Then the so called investors will turn to the US considering its huge debt problem.

slewie the pi-rat's picture

1yr 43 weeks = a recent few posts

he's put out opinions in 2 sentencez, here, about

  • greece
  • EU
  • what's bullish for EUR
  • so-called investors
  • US & its "huge debt problem,"

i would invite you to look at his other posts [clik on his name, etc] and see all the other hot-button topics this asswipe has breezily, handily addressesd,  in his eZ-breezy morning work-out, here...


Sandmann's picture

All the major wars of the world for the last 2000 years originate within Europe,

That makes the American Civil War, Chinese Civil War, Japanese War of Expansion, Mao's Great Leap Forward, Vietnam-Cambodia War, Korean War, USA-Vietnam War, China's Cultural Revolution, Nigeria-Biafra War, Ethiopian Civil War, Indonesia-East Timor, USSR-Afghan War, Somalia Civil War  absent from French History Textbooks.

Most of the major wars in Europe were caused by France which invaded the German states regularly over 400 years and only withdrew from Germany in 1930. All the wars England had to fight in Europe were to restrain France from threatening the island, and restraining the Dictator Napoleon when he crushed Britain's ally Prussia and proceeded to attack Russia.

The real problem in Europe is how to square French limitations as a Latin agricultural nation with its fear of a Saxon industrial nation and its pathological fear of Anglo-Saxons.

AnAnonymous's picture

Made me laugh.

US citizens, all about submission.

France is called France, because it is the country of Franks, a German tribe. It tells about who invaded who.

All of those gangs are German,and Indo Europeans. They are not native Europeans.
Actually, the Anglo-Saxons launched a propaganda campaign to discredit native Europeans.

Pathological fear of Anglo-Saxons: well, here's a point.

Here are the places where Anglo-Saxons settled:




North America

South Africa

All the places, under Saxon rule, had one social organization in common, to be found nowhere else.

So, if fear there is, there is nothing pathological to it.

Byte Me's picture

I think the chimeric proper noun you are searching for is MERKHOLE.
Unfortunately, very close to the one side/end - - but wait, isn't the (w)hole of Europe belong Germany now??

Police Commissioner Jacobs's picture

This article is just shocking. The banksters want their puppet re-elected and are predicting Armageddon if he loses. Just shocking.


The Swedish Chef's picture

Those pesky politicians getting in the way of UBS... Off with their heads! (Not banker heads too, OK?)

Seasmoke's picture

the bankers better be careful as i think the people WANT Armageddon

Zola's picture

Marine le Pen is for an inflationist economic policy (stimulus) and monetary policy (printing) , more state power and involvment through tariffs and protectionist policies. She does strike a good chord in the electorate but she is no Ron Paul or de Gaulle by far... Maybe one day historians in the US will realize what a great man RP was

tsuki's picture

Sarkosy has a lot of negatives with the voters, and is looking for more.  His return to NATO is not setting well with many across partisan lines. 

Nothing To See Here's picture

Let's be serious. The odds that once elected, Hollande will stand up to the banksters and will not bend over to the EU power elite are as close to zero as it gets.

tony bonn's picture

"Hollande's victory could unleash 'a new wave of instability and uncertainty,..."

fuck you ubs.....who brought on the first waves of instability and uncertainty???? banksters and politicians maybe? i think so....

DrunkenMonkey's picture

Don't forget all the candidates are campaigning and will spout any old rubbish to get the voters on their side (Demagogue is a very frequently used word in France and the voters, while 'raleurs', are by no means dupes).

Hollande is the alternative to the much hated Sarkozy for most, but don't write off Marine since the working classes are very pissed off by what globalization has done to their work lives or lack of them, and she is far from the fool her father was.

Long story short then, Sarkozy will be re-elected as the least bad candidate which, ulitmately, he is.

Zola's picture

MLP is NOT Ron Paul... thats the point of my previous post, if she was things would be VERY different... The philosophy of liberty is NOT what MLP is campaigning on. There is currently no RP equivalent in France.

connda's picture

Extend and pretend until the guillotines are pulled out of storage. 

What is good for the elite is bad for the masses.