French President Francois Hollande may have his differences with German Chancellor Angela Merkel, but Europe’s two most powerful leaders have agreed in principle to forge a growth strategy for Europe in time for next month’s European Union heads of state summit. Hollande’s plane was hit by lightning on his visit to see Merkel in Berlin, and the new president could be forgiven for thinking this omen spells trouble in the weeks and months ahead.
“France is not self-financing, but instead relies on capital inflows from abroad. Furthermore, the twin deficits (government deficit and current account) are in each case higher than the average for the euro land,” said Jan Poser, chief economist at Sarasin in a research note after Hollande’s inauguration.
“France is in the vicinity of the PIIGS countries, which also recorded twin deficits in this period, and apart from the core countries,” said Poser, who believes that without austerity measures, France will find itself in trouble with the bond market.
“An overly lax attitude to deleveraging would not only result in a fresh
“France is also vulnerable. It was already apparent at the end of 2011 that even a fundamentally very strong country can come under the markets’ gaze,” Poser said.
“Whereas the U.S.A., the UK and Germany have the luxury (or enjoy investors' trust) that their interest rates are lower than the
Things won’t necessarily go badly for
“France needs to start implementing austerity and reform programs now,” said, Poser who says the fact that Hollande is a socialist should not necessarily be seen as a negative by financial markets.
“Given the scope of the impending reforms in France, it might even be an advantage. If we consider the example set by former German Chancellor and SPD politician Gerhard Schröder's Agenda 2010 reform program, left-wing governments tend to be more successful at curbing the unions’ resistance because the latter see the alternative of a right-wing government as a far worse prospect,” he said.