There are no big surprises coming out of the first round of the French presidential elections, held on April 22nd. As was expected, Socialist candidate François Hollande (28.6%) pulled ahead of incumbent President Nicolas Sarkozy (27.2%) of the UMP party. Marine Le Pen and her extreme-right National Front scored a historic record high for the party of 17.9%. But back in 2002, her father Jean-Marie Le Pen got 17.8% in the run-off election, before his 2007 collapse when then-candidate Sarkozy successfully raided his constituency and relegated Le Pen to 10.4% of the vote.
In the coming two weeks, President Sarkozy will try to wow the National Front voters, only half of whom now say they will vote for him. He will also try to charm supporters of centrist candidate François Bayrou. Bayrou, however, did not perform well (9.1%), and only 38% of his supporters say they will vote for Nicolas Sarkozy. This is why the run-off looks like an uphill battle for Sarkozy: he has to straddle the ideological divide and considerably increase his score on both his right and his left.
While the strong showing of the National Front generally has little impact on national policies, it could matter greatly if President Sarkozy were to pull off a last-minute victory on May 6. That is not because he would adopt the National Front platform, but because Sarkozy would still be at a risk of losing the legislative elections of June 10 and 17. This would lead France back to a situation of divided government, or cohabitation, where the President is of one party and the National Assembly and the Prime Minister are of the opposite party.
The reason is the following: if a candidate gets more than 12.5% of the vote in the first round of a legislative election, which many National Front candidates look poised to do this year, he or she can choose to stay in the race for the run-off. Since there has so far been a strong moral element preventing political alliances between the UMP party and the National Front, both candidates on the right generally maintain their candidacies for the run-off, thereby dividing the vote. If the left manages to unite (by presenting just one candidate in each district through a nation-wide agreement), it can easily prevail.
A new French cohabitation would be the worst scenario for Europe, as it would make foreign policy decisions, especially on the Eurozone crisis, very difficult. Such a situation is also possible if François Hollande wins the run-off on May 6, but it is less likely: first, because of the strength of the National Front mentioned above, and second, because the electorate is more likely to grant a majority to a newly elected President.
Another important result of the first round is the weaker-than-expected showing of extreme left candidate Jean-Luc Mélenchon (11.1%). The lackluster totals mean that if François Hollande is elected, he will not have as much pressure on the left as was previously expected. He could then become a center-left president in the mold of Dominique Strauss-Kahn, rather than a crusading Socialist one, as some have feared.
The truth is, Hollande's program is not very audacious. He has veered to his left at times in order to gain votes, like his proposed 75% marginal tax bracket for revenues above $1.3 million. However, on close examination, there seems to be no inherent contradiction between his proposed reforms and the need to restore sound public finances. Contrary to what has been sometimes reported, Hollande does not want to revert the pension age to 60 from 62 (he would do so only for the retirees who have worked continuously for at least 41 years upon reaching age 60 – a very small fraction of the population). Neither does Hollande want to recruit 60,000 extra teachers out of the blue: they would actually replace outgoing civil servants in other ministries, with no new net hiring. Hollande offers a similarly moderate proposal to curb the public deficit, where he wants to get to zero in 2017 while Nicolas Sarkozy's target is 2016.
The big question, of course, underneath all of this is the fate of the Fiscal Compact – the new pan-European treaty steered by Angela Merkel and Nicolas Sarkozy that imposes new fiscal discipline on countries to prevent the recurrence of future debt crises. François Hollande is on the record approving and supporting the new discipline measures in the Fiscal Compact, but he has announced his intention once elected to renegotiate the treaty in order to add means for stimulating growth. And given the anemic projections of growth in Europe, that move is by now seen as a welcome correction by most observers in markets and governments – especially in Spain and Italy.
The challenge then for the Fiscal Compact, is two-fold. First, if elected François Hollande would need to somehow recreate a pro-growth consensus with Angela Merkel and the opposition Social Democratic Party of Germany (which agrees with Hollande on this point and whose votes are needed to ratify the Fiscal Compact in the Bundestag anyway), as well as Mario Monti and Mariano Rajoy. Second, the new measures would actually need to work. If they are insufficient, and a big recession hits Europe, there is a small but clear risk that European project would die a very virtuous death.