On Sunday, citizens across France will go to the polls to select their next president in the final runoff vote. The election between Francois Hollande and Nicolas Sarkozy has been politically polarizing, pitting the conservative right against the socialist left. At the heart of this election are economic issues, as it has come in the middle of the European financial and currency crisis, of which France is one of the major players. Their country’s roll in the EU and its economic future was the most discussed issue at the Hollande-Sarkozy debate on May 2. This election is one of the most important in the country’s history, as its effects will reach well beyond its borders and impact the economy and politics of much of the rest of the West. Whichever candidate wins, he will have a lasting and serious effect on Europe and the United States.
1) There will be a major shift in Foreign Policy and unity in the European Union
The European Union was designed with two aims. One of these aims was of fostering economic prosperity with increased trade. The other was of ancient nationalist divisions disappearing and that the conflicts of Europeans long history would cease. This has generally worked for the past 20 years, until the recent economic crisis, when this has come under threat.
No matter which of the two candidates is elected there will be strains on Western Europe’s long political unity. Hollande, a socialist, will be entering a Europe dominated by mostly conservative leaders, like David Cameron and Angela Merkel. Some analysts predict political tensions, especially since Hollande is looking for a confrontation. He has made it clear that he does not agree with the austerity measures for securing the EU's stability, and teeters on whether France should stay in the EU while wanting to renegotiate their position. Sarkozy on the other hand, though he has agreed to the economic measures, has campaigned on increased border controls, and cultural protectionism from the rest of Europe. They are both campaigning on moving France away from the EU, and not closer to it.
2) The long-term economic recovery of France and Europe can be affected
Economic recovery is at the heart of this election, specifically France's roll in the EU and its relationship with Germany. Through the past decades French banks have bought about $617 billion in bonds from the illiquid periphery states of Greece, Italy, Ireland, Portugal, and Spain. They are highly exposed to Europe's fiscal problems. In order to avoid default on those bonds, Sarkozy negotiated an austerity agreement with Germany, along with all EU member countries.
Needless to say Sarkozy is in favor of the EU’s recovery, as it is important for French fiscal security, even if the temporary austerity measures mean economic recovery will be slow.
Holland wants to renegotiate the agreement with Germany. He argues that recovery must be faster and that austerity is the wrong way to go. He wants recovery to involve state intervention and direct investment, in the belief that it will be more expedient. If Germany and the EU will not agree to that, then he may attempt to pull out of the EU. If France, one of the largest economies in the EU, is not a part of the bloc anymore, then there is the likelihood that bonds from the periphery countries could default, resulting in the union defaulting altogether. Whether they are part of the EU recovery or not, French economic growth will be slow.
3) A Hollande victory could affect the U.S. economy
There is fear on Wall Street that a push for a renegotiation of the recovery plan with Germany could lead to stagnation and bond defaults. If that is the case, U.S. investors may seek to move their money to other, safer regions of the world. This would mean selling off European stocks and government bonds, which would result in loss of capital for needed for reinvestment. The EU is the US’s largest trading partner, economic problems there means less trade with the U.S., which could result in slower recovery in the U.S. as well. Economic problems in the EU mean economic problems in America.
4) Struggling economic growth in Europe can influence the U.S, 2012 elections
Economic recovery is at the heart of the current U.S. presidential elections as well. If the EU’s recovery remains slow, it will have an impact on the recovery in the U.S.
In 2008 Barack Obama campaigned against the weak stimulus policies of his predecessor. If the America’s economy remains weak, Obama looses credibility, and Mitt Romney can use this against the incumbent to leverage victory.