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Do you think a change in leadership in France will make that much of a difference?


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#1 moed_over

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Posted 06 May 2012 - 03:20 PM

So I stumbled across this article that says that Wall street is worried about the impact of Sarkozy losing in France, and I saw our French friends were voting in the runoff on Facebook...

So do you think a change in leadership in France will be that big an altering factor in international finance?

http://finance.fortu...ollande/?iid=EL


Why Wall Street fears a Socialist French leader



Financial executives are worried about tougher regulations should Socialist leader Francois Hollande win the French presidential election. They should be.


France's presidential election has Wall Street and the global markets worried – and for good reason. The election of Socialist party leader Francois Hollande to France's top job this coming Sunday would introduce an air of instability into the global economy at a time when it desperately needs a steady hand.
But beyond the instability, there are concrete reasons why the markets should be concerned with a new Socialist-led government in the Elysee Palace. If elected, Hollande will inevitably push for tougher financial regulation in France and on the continent, and unlike his predecessor, will most likely see them through. This will invariably impact and eventually restrict the way Wall Street and the City of London does business, both on the continent and, quite possibly, at home. And if he pushes hard enough, he could disturb the carefully crafted agreement with the European Central Bank that is keeping the euro on life support, setting off a chain of events that could have dire worldwide economic consequences.

Wednesday's much hyped television debate between incumbent President Nicholas Sarkozy and his challenger, Francois Hollande, was nastier than expected. The candidates barked insults and spoke over one another for over three hours on everything from nuclear policy to who would be the toughest on Islam. While the debate did not provide any earth-shattering revelations from either man, it did solidify Hollande's commanding lead over Sarkozy.

It is no surprise French voters would be looking for a change in leadership given all the economic turmoil in the country. Voters and parliaments across Europe have pushed incumbent governments out of power, regardless of ideology, as the financial crisis has deepened. Germany is the only exception, but only because its elections are scheduled next year. Governments in Spain, Ireland, Italy, the UK, Portugal, Greece and most recently, the Netherlands, have all fallen in the last year or two.

In the eurozone, the changes in leadership have been viewed as mostly positive by the markets -- they have brought with them the tough changes needed to help stabilize the seemingly endless European sovereign debt crisis. A change in leadership in France should therefore be viewed the same way, right?

No. Hollande has said that he would shake things up once he gets in power and would not toe the line with Germany or anyone else. That means anything is on the table, including agreements Sarkozy had carefully worked out with his European counterparts in taming the sovereign debt crisis. In addition, Hollande seems bent on really sticking it to the banks. He is no fan of the City of London and Wall Street and has openly criticized them for the role they played in the financial crisis. "My enemy is not another candidate, it is not a person, it has no face, it is the world of finance," Mr. Hollande said in January. He clearly has an axe to grind, but he may be getting ready to slice off his own hands.

Before he goes after his enemy, Hollande will need to make good on some socialist policies, which could have spillover effects on the rest of the eurozone. He says he will raise the minimum wage, cancel scheduled spending cuts, hire back thousands of government workers and roll back the retirement age from 62 to 60. He also wants to increase government spending to sponsor large infrastructure projects - all in a bid to spur economic growth.

To pay for this, Hollande wants to tax France to death. Anyone making more than a million euros a year will see their tax rate go from 45% to a mind-blowing 75%. He'll then stick it to the banks, raising their taxes by 15%. In addition, he wants to implement a financial transaction tax, which could have dire consequences on France's already weak financial sector. The tax would hurt high frequency trading, wiping out a major profit center for some hedge funds and banks that operate in France. It would also hurt the competitiveness of France's broker-dealers in executing transactions.

To avoid financial firms from leaving in droves, Hollande will most likely push for the tax to be implemented across the European Union. While the UK has successfully blocked attempts to implement a transaction tax in the past, Hollande isn't likely to give up as easily as his predecessors. The French could back the UK into a corner on a number of other political issues to get its way on this one. Wall Street will be watching closely given the Obama administration's view that financial rules and restrictions should be harmonized on both sides of the Atlantic. The fear is that France's financial transaction tax could eventually go worldwide.

Socialist France could also impact the implementation of new international banking standards, known as Basel III. In Brussels, European finance ministers are currently discussing how they will collectively implement new rules that will eventually force banks to hold more capital on their balance sheet. A France run by Hollande will most likely push for a higher rate, jeopardizing the lending capacity of European banks. Any agreement made on Basel III by the Europeans will have a big influence on the rate that ends up being the international standard. Wall Street is in favor of a low rate so banks can invest more of its cash. A high rate would further restrict bank lending – hurting not only bank profits, but also the U.S. economy.

Hollande's war on finance could be limited to tougher regulations or higher taxes, but there is a real fear that he could take it too far. During Wednesday's debate he noted his discontent with the one thing that is holding the euro together– cheap funding from the European Central Bank. He scornfully said, "banks get a loan from ECB at 1% and lend at 6%. I refuse.

This seemingly innocuous statement went largely unnoticed by many watching the debate, but it probably set off alarm bells in several European capitals. That's because this pass through of cheap funding from the ECB is the only thing keeping Europe from totally falling apart. The money the ECB is essentially printing is being lent to banks on the cheap so they can turn around and buy sovereign debt. This allows European countries on the periphery to continue funding themselves, avoiding default and a eurozone meltdown. It also allows the banks to lend more to businesses and consumers in order to increase spending in the economy. The spread the banks earn helps to fill the massive holes in their balance sheet so that they can recover from the crisis.

It took almost two years for the ECB to get over its fear of hyperinflation and finally open the spigots. If Hollande refuses to go along with this economic deal with the devil then a worst-case scenario could play out: Bank failures in Italy, Spain and Greece, and even in Germany and France, leading to high yields and crippling sovereign defaults across the eurozone. The euro would be finished. U.S. and Asian financial firms with European exposure would get hit hard, setting off a panic that would make 2008 look like a pleasant stroll along the Champs-Élysées.

To be fair, this dire scenario precludes the possibility of Hollande, who is known in the French parliament to be a strong consensus builder, from changing tack at some point. Socialist politicians usually ramp up the rhetoric against banks on the campaign trail to pick up votes, so Hollande's hatred of the financial system may just be his way of playing to his base. Once in office, he might actually tone it down. Wall Street certainly hopes he does.



#2 moed_over

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    He saw the spinning lights he knew it was a sign....

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Posted 06 May 2012 - 03:22 PM

Man, this board sucks at copy/paste...All those different font changes were not in what i posted...

#3 PeaceFrog

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Posted 06 May 2012 - 03:50 PM

In the upper left corner of the reply box is a little button labeled "toggle editing mode"

try clicking that before you paste. It might work.

#4 PeaceFrog

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Posted 06 May 2012 - 03:52 PM

The other option would be the middle clipboard button over to the right where it says "paste as plain text"

that works too and is probably better because then you can still use smilies and all that, it just gets rid of the html formatting of whatever you paste.

finally, I see a third option up there to remove the formatting of a post... which you could use right now even after you already posted.

Just select all the text (ctrl-a) and then click the eraser button (second one in on the upper let) and "remove formatting"

The only problem I have is trying to "Use Full Editor" to edit a post after I already posted it. So, basically option 3 doesn't work yet.

#5 moed_over

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    He saw the spinning lights he knew it was a sign....

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Posted 06 May 2012 - 06:46 PM

Thanks for the tips.

I guess we are going to find out as Sarkozy just conceded the election....

#6 Julius

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Posted 07 May 2012 - 01:50 AM

Hollande is a disaster of tremendous proportions, not just for France but for the world.

#7 moed_over

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Posted 07 May 2012 - 11:50 AM

Hollande is a disaster of tremendous proportions, not just for France but for the world.


Why do you think that is so?

#8 TakeAStepBack

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Posted 07 May 2012 - 12:57 PM

Because he is a socialist of the tax and spend variety. France, like many EU members, is facing a massive financial crisis. Yet this guy wants to spend more and he will. He claims a balanced budget by 2017. I heard that before somewhere...

The impact could be the difference between a salvaged currency adn a dead one. Of course, with his tax the wealthy policy, he's doing the UK a favor. As capital flight ensues.

Disasterous for the world? I don't know about that. But he's definitely going to make a mess in France...on top of the existing disaster that is brewing there.

#9 deadheadskier

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Posted 07 May 2012 - 03:26 PM

I don't think his social programs are what scares Wall Street.

It is more that he is of mind to put forth massive regulations on banking, which will slow investment.

#10 TakeAStepBack

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Posted 07 May 2012 - 03:37 PM

That and his tax policies. His social program ramp up will only help create the climate of insolvency spreading around the EU like wild fire.

Spain spent 7 years under socialist govt. They are now reaping what that sows.

#11 PeaceFrog

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Posted 07 May 2012 - 05:21 PM

not sure, all I've found out so far is that it strengthened the US Dollar and the Swiss Franc, and it weakened the Euro and the Yen