By Stephen Sandelius

PARIS (MNI) – French voters gave Socialist candidate Francois
Hollande a narrow victory over incumbent president Nicolas Sarkozy in
the final round of elections on Sunday.

Preliminary estimates showed Hollande taking just over 51% of vote
— less than the polls had predicted. The voter turnout of nearly 80%
was slightly higher than in the first round two weeks ago.

“The French on this 6th of May have chosen change!” Hollande told
his supporters. “It’s starting now.”

The election marks a quantum leap in the political career of the
57-year-old former Socialist Party leader and parliamentarian from a
rural district in southern France.

A graduate of the country’s elite schools of administration,
Hollande held various low-profile positions in Socialist governments
before taking over leadership of party from 1997 to 2008. Aside from his
political savvy and determination, he owes his victory to the fact that
as party candidate, he offered voters on the Left the best odds to block
Sarkozy’s re-election.

Hollande’s campaign pledge to overcome social divisions will be put
to the test in the coming five years, as he aims to wipe out a public
deficit of 5% of GDP during a period when anemic economic growth and
high unemployment will make to hard to compress social outlays.

“The challenges that await us … are many, and they are heavy,”
Hollande said, citing the need to boost production, reduce deficits and
preserve the nation’s “social model”.

“The problems won’t disappear with the depart of the incumbent,” he
had warned during the campaign. “Afterwards it will be tough.”

Hollande has promised little in the way of costly social programs
apart from increased support for families, subsidized training for youth
hires in private firms and the partial reconstitution of the public
education staff decimated over the past five years.

Nevertheless, by increasing taxes on big business, on higher
incomes and on investment revenues and by capping top salaries in public
firms, the new president may render the bitter medicine of budget
austerity easier to swallow. This budget austerity is absolutely
necessary to keep away the wolves of the financial world, which he once
targeted as his “adversary”.

Hollande’s task will be facilitated somewhat by Sarkozy’s overhaul
of the pension system and local business taxes. But the Socialist is
likely to put a damper on further painful structural reforms advocated
by many economists to bolster economic competitiveness. His intention to
rescind the planned VAT hike aimed at financing cuts in social payroll
taxes, to accelerate the rise in minimum wages, and to hike payroll
taxes slightly to finance early retirement for some employees will only
add to labor costs.

“Europe is watching us,” Hollande said. “I am certain that in many
European countries [this victory] is a relief, a hope — the idea that
finally austerity can no longer be a fatality.”

Yet the new president’s lack of international experience could
prove a handicap for his ambitious plans to shift gears at the European
level away from pure budget austerity toward structural investments to
promote growth. While he demonstrated his talent for consensus-building
by papering over divisions within his own party for years, bringing
together European partners with divergent national interests may well
prove harder than he pretends.

Germany remains stubbornly opposed to Hollande’s proposal for
eurobonds and to jaw-boning the European Central Bank for easier
financing of national deficits. Pushing back Sarkozy’s target date for
balanced public finances by one year to 2017 could undermine his
credibility in Berlin as well as Brussels.

The immediate challenge for the new president will be to gain a
supportive parliamentary majority for his government in the elections to
be held on the second and third Sundays of June. In contrast to the
presidential ballot, all candidates winning at least 12.5% of the
registered electorate in a given voting district qualify for the
run-offs for the National Assembly.

The strong showing of the right-wing candidate Marine Le Pen in the
first round of the presidential elections suggests that her National
Front party could split the electorate on the Right in a large number of
districts, which would be a boon for parties on the Left and thus for
Hollande.

At the same time, the Socialist Party will have to assure that it
is not knocked out of the run-offs in a smaller number of districts due
to divisions on the Left. The Socialists have cobbled together a
coalition with the Greens and the Leftist Radicals but may have to
sacrifice some seats in parliament to their rivals on their left flank,
the Communists and the Leftist Party, who will not be docile allies.
Even the Greens might eventually split ranks if Hollande continues to
unravel the accord over the reduction in dependence on nuclear energy.

The defeated incumbent, speaking to his saddened supporters, said
he had spoken with Hollande to wish him “good luck amid the challenges.”

“It will be difficult,” Sarkozy warned. “But I hope with all my
heart that he succeeds.

–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com

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