FRANCE'S new socialist President Francois Hollande will come under heavy pressure to abandon his anti-austerity platform, used to chase votes in the country's general elections overnight.
As the first round of voting in France's parliamentary elections took place, Mr Hollande's tax-and-spend stance was expected to help his Socialist Party and its left-wing allies win a majority in the National Assembly. The President, who ousted Nicolas Sarkozy last month, has made good on promises to cut the retirement age in France to 60 from 62 for people who started work at 18, a move that goes against austerity efforts across the Western world.
Meanwhile, his Labour Minister, Michel Sapin, responded to a rise in the French unemployment rate to 10 per cent, with a pledge to "make layoffs so expensive for companies that they are not worth it". The latest opinion polls indicated that Mr Hollande and his allies would gain the 289 seats needed to take control of France's lower house after a second round of voting next Sunday.
A recent survey showed that 53 per cent of people feel more confident about their country's economic future, up 20 percentage points from just before Mr Hollande became President.
However, it is expected Mr Hollande will be told to change course when the Cour des Comptes, the body that audits France's public accounts, reports to him on the nation's finances as requested on June 19, two days after voting finishes. The President is likely to be told to cut expenditure, a strategy "at odds with his socialist political platform", according to Dominique Barbet, an economist at French bank BNP Paribas. Some believe Mr Hollande will ask for more time, pushing back targets to cut France's deficit.
"This date was not chosen by chance," Mr Barbet said. "The Cour des Comptes has already been critical of the magnitude of public spending. An adjustment of the economic policy targets is thus likely to occur very quickly, right after the elections. The financial crisis offers no time for hesitation."
The big question around the elections is whether the Socialist Party will be able to obtain an absolute majority of seats without its allies, the Greens and far-left candidates.
"The government would still be able to pass its laws . . . but that would be more complicated and time consuming," said Mr Barbet. "Ultimately, the policy would be more leftist."
Although the far-right, anti-immigration National Front can hope for only a small number of seats in the Assembly because of the way the French electoral system works, even that result would represent huge progress for it.
Should the vote throw up surprises, markets are likely to react badly, as it could hobble Mr Hollande's ability to enact the economic policy changes they expect will be necessary.
At stake is not just ascendancy at home, as much as the Socialists relish the prospect.
A parliamentary triumph could resonate throughout the European Union, boosting Mr Hollande's profile as leader of the charge to turn Europe from its fixation on austerity towards promoting growth as the key to solving its economic crisis.
"Reaching a majority in the Assembly would clearly give Hollande more legitimacy to carry out a more radical policy both at home and at the EU level," Oxford University scholar Sophie Heine said.
"The political and symbolic weight of France in the EU is still very substantial."
Frequently Asked Questions about this Article…
What is François Hollande's anti-austerity platform and what actions has he already taken?
Hollande campaigned on a tax-and-spend, anti-austerity platform. According to the article, he has already cut the retirement age from 62 to 60 for people who started work at 18 and signalled policies aimed at boosting growth rather than pursuing strict spending cuts.
How could the French parliamentary elections affect Hollande's ability to pursue anti-austerity policies?
The elections will determine whether Hollande and his Socialist allies secure the 289 seats needed to control the lower house. If they win a clear majority, he would have more legitimacy to push for growth-focused policies. If not, he may need the Greens and far-left allies, which would complicate and potentially shift policy further left, or force compromises.
Why should investors care about the Cour des Comptes report mentioned in the article?
The Cour des Comptes audits France's public accounts and is scheduled to report shortly after the vote. The article notes economists expect it to recommend cutting expenditure, which could pressure Hollande to change course. Investors should watch this report because it could trigger policy shifts that affect the French fiscal outlook and market sentiment.
What did BNP Paribas economist Dominique Barbet say about likely policy changes after the elections?
Dominique Barbet of BNP Paribas said the Cour des Comptes has been critical of the size of public spending and that an adjustment of economic policy targets is likely soon after the elections. In short, Barbet expects pressure for spending cuts that could conflict with Hollande's socialist platform.
How has public confidence in France's economic future changed since Hollande took office?
A survey cited in the article found 53% of people feel more confident about France's economic future—an increase of 20 percentage points from just before Hollande became President.
How might markets react if the election produces unexpected results?
The article warns that markets are likely to react badly to surprising outcomes that hamper Hollande's ability to deliver the economic changes investors expect. Uncertainty about policy direction can prompt negative market moves.
What could a Socialist parliamentary triumph mean for the European Union and investment climate?
A strong parliamentary win for the Socialists could boost Hollande's profile across the EU and strengthen calls to shift European policy from austerity toward growth. For investors, that could signal potential changes in EU-wide economic priorities and policy debate, which may affect cross-border investment sentiment.
What does Michel Sapin's pledge on layoffs mean for companies and investors?
Labour Minister Michel Sapin pledged to 'make layoffs so expensive for companies that they are not worth it.' For companies, this could mean higher costs or tighter rules around redundancies. Investors should be aware this type of policy could affect corporate costs, employment decisions and potentially profitability in affected sectors.
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