President Nicolas Sarkozy and challenger Francois Hollande threw themselves into the second round of France’s election, vying to lead a country split over tackling immigration and ending a sovereign debt crisis that threatens to engulf the euro region’s second-largest economy.
French bonds fell after the results of the election’s first round were announced late yesterday, with a record 17.9 percent showing for anti-euro National Front leader Marine le Pen. Socialist Hollande won the first round with 28.6 percent while Sarkozy’s 27.2 percent score made him the first incumbent not to lead in the first round. Holland and Sarkozy square off May 6.
The risk for investors is that the National Front’s performance will make the next president reluctant to embrace policies needed to revamp the economy just as other European leaders try to prevent Spain from unleashing a new round of market turmoil. Sarkozy told reporters today that National Front voters “must be respected.”
“The high score of the extreme right will thus likely reinforce the natural unwillingness of the traditional political class towards reforms, creating a climate of uncertainty that the market will resent,” said Nicolas Doisy, an economist at CA Cheuvreux. “Thus, just like Mitterrand in the early 1980s, Hollande will likely relent only under market pressure, thus disappointing popular voters.”
Hollande is slated to give a speech to supporters in Brittany at around 4 p.m. local time. “We must talk to all those who feel abandoned and those who feel humiliated,” Martine Aubry, his Socialist party’s first secretary, said today in Paris.
The extra yield demanded by investors to hold French 10-year bonds over German bunds rose 5 basis points to 143 today. France’s CAC 40 Index fell 1.9 percent, less than other benchmarks around Europe, which were spooked by weakening economic data from the euro region and China.
Governments across Europe are struggling to reassure voters that they can cope with the tensions unleashed by the region’s debt crisis. Dutch Prime Minister Mark Rutte today called elections after an anti-immigrant ally refused to back deficit cuts. In the Czech Republic, premier Petr Nacas’s government is being torn apart by a dispute over austerity measures.
In France, almost one in every five voters backed Le Pen’s anti-euro and anti-immigration message as she attacked Sarkozy and Hollande for being “Siamese twins” unable to fix France’s problems.
Her score may force Sarkozy to step up his call for the European Central Bank to expand its mandate to include fostering economic growth. It may also encourage him to lure more voters concerned by rising immigration at a time when the country jobless claims are at a 12-year high.
Already yesterday, Sarkozy touched on immigration and crime as issues he is likely to focus on in his campaign, referring to a “crisis of immigration” and calling for greater border controls. For his part, Hollande blamed Sarkozy’s economic and social policies for the rise of the National Front.
“Voters of the National Front must be respected,” said Sarkozy in Paris today. “It was a vote of suffering, a vote of crisis.”
Hollande will also have to be wary of voters alienated by the mainstream political parties that have pledged to cut the budget deficit. While the Communist Party-based Jean-Luc Melenchon fell short of some pollsters’ forecasts, he still got 11.1 percent of the first round vote.
Hollande has pledged to renegotiate parts of a fiscal pact seen by German Chancellor Angela Merkel as a key pillar to fighting the debt crisis and, like Sarkozy, has called on the ECB to do more to stop the turmoil. Merkel still backs Sarkozy, a German government spokesman said today.
“If Sarkozy had won comfortably yesterday, it would have been business as usual with France and Germany trying to hold the Eurozone together,” said David Miller, a partner at Cheviot Asset Management in London. “However, the new prospect of a new President and new approach to dealing with the eurozone crisis has made investors and European markets nervous. We’ll see muddled markets until the final result is declared.”