The Great Debate

What happens if Hollande wins?

His political allies wrote him off as a lightweight, “a pedal-boat captain in a storm” as one memorably put it. European leaders, including Germany’s Angela Merkel, have gone out of their way to avoid him, and the markets have been unimpressed by his declaration, to the City of London, that “I am not dangerous.”

Yet with opinion polls in France unanimously predicting that François Hollande will be elected president on Sunday, this is a good time to be asking just how bad his presidency really would be for France, for Europe and for the markets.

If he does win, will he be able to inspire confidence and rebuild and renovate the fragile economy, with its heavy debt, stagnant growth and rising unemployment? Or will he preside over its rapid descent into Greek- or Spanish-style chaos, as Nicolas Sarkozy, the incumbent at the Elysée Palace, keeps warning?

Hollande’s track record gives few clues. He spent years as a Socialist Party apparatchik, serving as party leader during an extended period of infighting and presiding over two stinging election defeats. He’s only where he is today because he was in the right place when Dominique Strauss-Kahn shot himself in the groin.

Yet, unlike the last Socialist Party candidate who was elected president, François Mitterrand, Hollande would take office without heavy ideological baggage. Mitterrand in 1981 nationalized French banks and experimented with a full-scale reflation of the economy before being forced to change course two years later when the French franc collapsed. Hollande admires Mitterrand but lived through the U-turn. He has identified the world of finance as his true enemy, but his proposals are more Glass-Steagall than Lenin: His main plan for French banks calls for a separation of their trading and commercial operations. He calls for a new European emphasis on growth, but his solutions are mild: bigger investment by a French government development bank and a promise to persuade European leaders to launch Eurobonds – a non-starter for Germany’s Merkel.

from Lawrence Summers:

It’s time for the IMF to step up in Europe

By Lawrence Summers
The opinions expressed are his own.

European leaders will meet today for yet another “historic” summit at which the fate of Europe is said to hang in the balance. Yet it is clear that this will not be the last convened to deal with the financial crisis.

If public previews from France and Germany are a guide, there will be commitments to assuring fiscal discipline in Europe and establishing common crisis resolution mechanisms. There will also be much celebration of commitments made by Italy, and a strong political reaffirmation of the permanence of the monetary union. All of this is necessary and desirable, but the world economy will remain on edge.

Given that Europe is the largest single component of the global economy, the rest of the world has a stake in helping to avoid major financial accidents. It also has a stake in aiding continued growth in Europe and ensuring that the European financial system supports investment around the world – particularly as cross-border European bank lending dwarfs that of banks from any other region.