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by Euro Reporter
2012-05-07 08:47:59
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France's Francois Hollande changes the mix in Europe

With Francois Hollande's election as France's first Socialist president in 17 years, Europe now must deal with a major leader who has promised to push a different approach to resolving the continent's debt crisis. Hollande's message, that the German insistence on austerity must be tempered with plans to stimulate economic growth, helped propel him to a decisive win Sunday over incumbent President Nicolas Sarkozy, with nearly 52% of the vote. Hollande, 57, is expected to take over May 15 from Sarkozy, who became the first sitting French leader to lose a re-election bid in more than 30 years. "In the whole of Europe it's time for change," Hollande told cheering crowds who gathered to hear his victory speech in Paris early Monday. Earlier, in an address in his district of Tulle, Hollande vowed to make his election "a fresh start for Europe" and declared that "austerity need not be Europe's fate."

One of the first calls the president-elect is expected to make is to German Chancellor Angela Merkel. The message is likely to be conciliatory but firm, a reiteration of his campaign pledge to renegotiate the treaty to limit public spending that Merkel thrashed out with Sarkozy. Having sold himself to the French public as a man of his word, Hollande will not want to start with a broken promise. But analysts say that Hollande, who favours higher taxation and growth through stimulus spending, actually has little room to manoeuvre and will need to act fast to placate the financial markets that see him as a threat to Europe's effort to rein in its high levels of public debt. On Sunday, the Standard & Poor's 500 index futures tumbled 1% to 1,348.90 in early trading, indicating that there would be a decline in U.S. stocks Monday morning. In Japan, the Nikkei 225 index was also heading downward. France's crippling debt burden saw it lose its coveted triple-A credit rating this year. With the unemployment rate nudging a record 10%, coupled with stuttering growth and declining industry, Hollande faces major challenges and must hit the ground running.

After his swearing-in next week, he is due to fly to the U.S. the next day to attend the Group of 8 meeting at Camp David and the North Atlantic Treaty Organization summit in Chicago. In the intervening 24 hours, Hollande is expected to try to fit in a visit to Berlin to see Merkel. Relations between the two leaders, whose countries are the heavyweights of the European Union, could be complicated by the fact that Merkel publicly supported Sarkozy's re-election bid. But the German leader is also aware that opposition to her insistence on austerity as the answer to Europe's economic and financial ills is building across the region. In Greece, the epicentre of the debt crisis, voters on Sunday abandoned mainstream parties who had agreed to unpopular cuts in return for bailout funds. Spain, Italy and other countries have also seen massive public protests against government austerity plans. Hollande rode to victory on a wave of anger over austerity measures and a growing sense of inequality in France. He has pledged to increase taxes on the wealthy by introducing a 75% tax rate on personal earnings that exceed $1.3 million a year, and to fix the salary of heads of state-owned companies to a maximum of 20 times the lowest-paid employee. He has also promised greater regulation of financial institutions and said he would force banks to split off their speculative operations.

One of Hollande's first measures will be to live up to his reputation as "Monsieur Normal" and slash his own salary, and those of his ministers, by 30%, a measure that would put him in stark contrast to Sarkozy, who immediately increased his monthly pay check upon coming to power. But in spite of his public dislike of austerity and his calls for more emphasis on promoting growth and employment, Hollande is believed to have assured Germany that he will not be economic loose cannon within the European Union. Britain's Guardian newspaper reported that it had obtained a confidential note from the German Embassy in Paris to Merkel's office in Berlin, which said Hollande had reassured the Germans that he would not return to Keynesian tax-and-spend practices. "Hollande is aware that right at the start of his term in office, he will have to spell out hard truths to the French," the memo said, according to the Guardian. It added that Hollande expects to find France's public finances in a worse situation than Sarkozy led his compatriots to believe. In a nod to fiscal prudence, Hollande has promised to balance France's books by the end of 2017, a feat that has not happened in 30 years. To that end, he is insistent that the budget deficit target of 3% of gross domestic product for next year must be reached.

Simon Tilford, chief economist for the London-based Centre for European Reform, said that any shift in European economic policy, led by Hollande, would probably come in the medium term rather than immediately. "I don't think he's going to come out tomorrow and say, 'Right, there's going to be a fundamental reassessment of the strategy,'" Tilford said. "Hollande will initially have a softly, softly approach to Germany. He's going to attempt a fairly conciliatory approach," Tilford said. "Once that's rebuffed and the French economy deteriorates and the south [Spain and Italy] slides into ever-deeper crisis, then we will see a broader-based challenge to the German hegemony." For Sarkozy, Sunday's vote was a massive rejection of him as a politician and a person. Sarkozy was the most unpopular French president to seek re-election, a leader derided for his showily glamorous lifestyle.

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Nikkei hits three-month low after France, Greece polls

Japan's Nikkei average shed 2.6 percent to hit a three-month low on Monday after elections in France and Greece raised concerns on whether struggling euro zone economies will continue to pursue austerity measures and as U.S. jobs data came in weaker than expected. "It's red all over the place. It's pretty bad," a trader at a U.S. bank said, adding that concerns over the euro zone and slowing growth in the United States triggered yen buying, which further weighed on Japanese exporters. The Nikkei .N225 was down 242.08 points at 9,138.17, breaking below its 52-week moving average near 9,158 but holding above its 200-day moving average near 9,066.

Among exporters, Honda Motor Co (7267.T) dropped 4.6 percent, Toyota Motor Corp (7203.T) shed 3 percent and Sony Corp (6758.T) fell 3.9 percent. Financials also suffered as investors cut their exposure to risky assets. Nomura Holdings (8604.T), Japan's top investment bank, sank 6.4 percent, insurer Tokio Marine Holdings (8766.T) dropped 3.9 percent and lender Sumitomo Mitsui Financial Group (8316.T) lost 2.9 percent. Greek voters enraged by economic hardship caused by the terms of an international bailout turned on ruling parties in an election on Sunday, putting the country's future in the euro zone at risk and threatening to revive Europe's debt crisis.

In France, voters ousted incumbent Nicolas Sarkozy, a key architect of bailouts for indebted countries and an advocate of austerity measures, in a presidential election on Sunday, and winner Francois Hollande promised to start a pushback against German-led austerity policies. Adding to the political uncertainty in Europe, U.S. employers cut back on hiring in April, spurring concerns the world's largest economy is losing momentum.

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Extremist Golden Dawn party, which rejects neo-Nazi label, set to win 7 percent of the vote in stunning rise


Furious Greeks punished the two parties that have dominated politics for decades in the crisis-battered country Sunday, leaving its multibillion dollar international bailout - and even its future in the euro currency - hanging in the balance. With more than 83 percent of the vote counted, Greece appeared to be heading toward political stalemate. Nobody won enough votes to form a government, and the two parties that backed the bailout - the conservative New Democracy and socialist PASOK - conceded they need to win over adversaries to form a viable coalition. "I understand the rage of the people, but our party will not leave Greece ungoverned," said New Democracy leader Antonis Samaras. New Democracy was leading with nearly 20 percent of the vote, which would give it 110 seats in the 300-member parliament. PASOK, which has spent 21 years in government since 1981 and stormed to victory with more than 43 percent in 2009, saw its support slashed to about 13.5 percent. It will have just 41 seats, compared to 160 in the last election. The two parties saw their support plummet to the lowest level since 1974, when Greece emerged from a seven-year dictatorship. The outcome showed widespread public anger at the harsh austerity measures imposed over the past two years in return for rescue loans from other European Union countries and the International Monetary Fund. Without the funds, Greece faced a disastrous default that could have dragged down other financially troubled European countries and seen it leave the euro.

Voters who deserted the two mainstays of Greek politics in droves headed to a cluster of smaller parties on both the left and right, including the extremist Golden Dawn, which rejects the neo-Nazi label and insists it is nationalist patriotic. The movement has been blamed for violent attacks on immigrants and ran on an anti-immigrant platform, vowing to "clean up" Greece and calling for land mines to be planted along the country's borders. The party looked set to win about 7 percent of the vote, giving it 21 deputies in parliament - a stunning rise for a group that earned just 0.29 percent of the vote in 2009. Sunday's other big winner was Alexis Tsipras, the 38-year-old leader of the Radical Left Coalition, or Syriza, who saw his party poised for an unprecedented second place with 16.4 percent and 51 seats - the first time in nearly 40 years that any party other than New Democracy or PASOK has held the spot. Turnout stood at just over 64 percent - a low figure for the country, where voting is officially compulsory, although no sanctions are applied for not casting a ballot. Negotiations are expected to begin Monday to form a coalition. As first party, Samaras will get three days to seek partners. If he fails the mandate will go to the second party for a further three days, and then to the third party. If no agreement can be reached, the country heads to new elections.

Both Samaras and PASOK leader Evangelos Venizelos, who spent nine months as finance minister, indicated any unity government would have to include more than just their two parties. But in a note that will likely raise alarm among Greece's international creditors, Samaras insisted any coalition should renegotiate the terms of the country's bailout. "We are ready to take up the responsibility to form a new government of national salvation with two exclusive aims: For Greece to remain in the euro and to amend the terms of the loan agreements so that there is economic growth and relief for Greek society," he said. Riding high on his massive gains, Tsipras stuck to his anti-bailout position, saying the agreement should be overturned altogether. "The people have rewarded a proposal made by us to form a government of the Left that will cancel the loan agreements and overturn the course of our people toward misery," he said before heading out to meet throngs of jubilant supporters.

More than two years of repeated austerity measures that have included pension and salary cuts and waves of tax hikes have pushed Greece into a deep recession that has seen the jobless rate explode and tens of thousands of businesses close. Venizelos insisted his party, which was in power from the start of the crisis in late 2009 until a political crisis forced it into an uneasy coalition with New Democracy, had no choice but to impose the spending cuts. "For us at PASOK, the day is particularly painful," he said. "We knew that we would pay the price, having taken an emotionally and political unbearable position to take the measures that were necessary." He called for a broad coalition of pro-European parties, regardless on their stance on the bailouts. "A coalition government of the old two-party system would not have sufficient legitimacy or sufficient domestic and international credibility if it would gather a slim majority," Venizelos said. "A government of national unity with the participation of all the parties that favour a European course, regardless of their positions toward the loan agreements, would have meaning." The political leaders, humbled by the drubbing in the polls which saw their combined support drop to about 33 percent, compared to a historical average of 80 percent, will have to work fast to ensure their country doesn't slide into protracted political instability. Greece's international creditors are also looking to see whether it will introduce new measures expected in June to ensure the country meets the fiscal targets of its rescue loans.





        
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