FRENCH KISS-OFF: Defeated French President Nicolas Sarkozy (inset) nuzzles wife Carla Bruni-Sarkozy yesterday in Paris. (
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Financial markets will be shakier than a Frenchman in a foxhole today, analysts predicted, after voters in France yesterday said au revoir to austerity with the election of Socialist presidential candidate François Hollande, who ran on a platform of increased domestic spending and higher taxes on the wealthy.
The 52 to 48 percent rebuke of Nicolas Sarkozy and his budget-cut policies will likely put further strain on the struggling 17-country euro zone, analysts warned.
“Market reaction will be bad,” said Christopher Whalen, senior managing director of Tangent Capital Partners in Manhattan. “Everyone thought Sarkozy would squeeze by.”
True to predictions, Asian markets plummeted early this morning with Japan’s Nikkei index down a staggering 2.7 percent a few hours after opening.
Hong Kang’s Hang Seng index plunged 2.4 percent in early trading.
The dramatic slash in public spending by Sarkozy is what some economists credit with keeping France from spiraling into the same fiscal abyss as Greece, Spain and Portugal — but it was widely unpopular with the French public.
“There’s potential for uncertainty and instability in Europe,” said John Praveen, managing director of Prudential International Investment Advisors. “The market is pricing in extremely negative scenarios.”
In other words, markets are heading south.
“Hollande’s election is bad for growth within France because he sponsors more social spending not less,” said David Kotok, the chief investment adviser of Cumberland Advisors.
Throughout his campaign, Hollande, 57, called “the world of finance” his country’s real enemy.
Already last Friday, there was a sell-off in anticipation of Hollande’s victory with the Dow Jones closing down 1.3 percent and US stock futures declining yesterday during trading in Asia.
It isn’t just Wall Street that is concerned.
“The German economy, which is already stressed, will now be the only and woefully inadequate balance sheet left to support a crumbling euro zone,” said Michael Pento, of Pento Portfolio Strategies.
Markets could also be spooked by votes in Greece yesterday where the two parties that support a bailout by other European countries and the International Monetary Fund could not win enough votes to form a coalition. That’s because strict conditions come with the bailout, including the imposition of harsh austerity measures.
Hollande, the first leftist to hold power since 1995, had made no secret of his agenda throughout his campaign against Sarkozy — disliked by half of the country for embodying the upper class with his $72,000 Patek Philippe watch and ex-supermodel wife Carla Bruni-Sarkozy.
“Austerity can no longer be inevitable,” thundered Hollande, who never held national office before, in his victory speech. He has promised to raise the top-tier tax rate from 50 percent to 75 percent on the rich, to reinstate the retirement age of 60 and bring back popular domestic spending and stimulus programs.