French Elections and the Euro

France’s heart beats on the left, but the country’s wallet is on the right. This may be a cliché, it has an element of truth. The first round of Presidential elections in France takes place on April 22, with a run-off vote on May 6 if there is no clear winner in the first round. Much is at stake not only for France, but for Europe as well. France has the second largest economy in the zone after Germany and its economic policy has a big impact in the region. The election outcome will define France’s response to Europe’s ongoing recession, as well as its stance with respect to its neighbors in the Euro zone. But irrespective of whether France’s heart wins or its wallet wins, the outcome may not be very favorable for the Eurozone. France’s current presidential system, introduced by General de Gaulle in 1958, confers wider powers on the country’s President than in almost any other developed country. At its introduction these powers were needed to bring an end to the war in Algeria and to bring political stability to the country. Today, these powers mean that the President and his team for the most part define economic policy, with few checks and balances from parliament or the judiciary, and dramatic changes in direction are possible. For example, at the start of the first term of Socialist President François Mitterrand in 1981, the government nationalized broad swathes of the economy which were the electoral promises outlined in the Socialist/Communist coalition’s “Programme Commun’. Massive capital flight ensued, and the value of the French franc plummeted. President Mitterrand had to backtrack, but not before significant damage had been done to the economy. The French political right, unlike the right in most other developed countries, is not a strong defender of the market. France’s most important party on the right, the Union pour un Mouvement Populaire (UMP) of the incumbent President Nicolas Sarkozy, is a direct descendant of General de Gaulle’s popular movement. Gaullists have always stood for economic self-sufficiency and for a strongly independent defense and foreign policy, and President Sarkozy runs true to type in this regard. On the economic front, his record during his first presidential mandate shows he is a supporter of industrial policy, of national champions, and increasingly, of protectionist trade policy. Nor does France’s main party on the left, the Socialist Party, support market-based solutions either. Unlike Britain’s Labor Party or Spain’s Partido Socialista Obrero, France’s Socialists under former Party Secretary and Presidential candidate François Hollande remain mired in a decades-old narrative of class struggle, the central role of the State, taxation of the wealthy and strong entitlement programs. The hopes that Mr. Dominique Strauss-Kahn would revitalize the party with his strong economic credentials earned at the International Monetary Fund (IMF) and its robust response to the financial crisis were dashed when he was arrested in New York on charges of molesting a hotel chambermaid, charges that were later dropped. Mr. Strauss-Kahn’s behavior is likely to go down in the history books as a tragedy in terms of foregone opportunity for change. President Reagan famously said: “The government is not the solution, it is the problem.’ This view of the poor effectiveness of the State could not be further from the view of the French about their system. Both the left and right in France support a strong role for the State because it is very popular with voters. People like the cost-effective public health system (“Sécurité Sociale’) which delivers high quality care for all, with far better health …