Two major European nations, Greece and France are ready for elections. While Greece will hold its parliamentary elections, France will vote for the second round of presidential elections. The battle between Francois Hollande and Nicolas Sarkozy is very close, with Hollande taking a slight lead in the pre-poll surveys.
In an interview with CNBC-TV18, James Goundry, Country Analyst, IHS Global Insight talks about the presidential race and its impact on the Euro zone as a whole. Goundry picks Hollande over Sarkozy and believes that if Hollande wins, he will try to balance the budget by 2017.
Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video.
Q: Let me start by asking you that Francois Hollande has given a very tough fight to President Sarkozy. He seems to be ahead right now. How do you think this will turn out on Sunday?
A: It looks as if it's going to be a victory for Hollande, people are binding the word miracle around now if Sarkozy is going to win and I think that’s pretty accurate. All the indications suggest it’s going to be a relatively easy win for Hollande on Sunday.
Q: If it's going to be a relatively easy win then the next question to you is how will or what do you expect will be the changes to France’s economic policy if Francois Hollande did come to power?
A: It's important to bear in mind that Hollande has promised to balance the budget by 2017, which is only one year later than Sarkozy was saying he would do it.
What we are going to see is changes in the way he aims to achieve this, rather than any grand change in his overall approach to economic policy. We are likely to see a shift towards a greater tax burden on the wealthy. We are likely to see a greater burden on big businesses and also alleviating some of the taxes on the poor in society.
With regard to Europe, what we are likely to see is him pushing for a stronger emphasis on growth at the EU level. He has made it very clear that’s what he is going to be pushing for.
Q: There are two or three issues that I would like your views on with regards to what Hollande’s position is likely to be and what impact it’s going to have. First, let’s start with the sweep of austerity that’s driving across Europe and I am keen to know what Francois Hollande’s position is on that austerity? Is he going to be in favour of it or not because France has been one of the key countries along with Germany that’s pushed for that austerity in the periphery?
A: I think it’s fair to say Hollande is going to be in favour of continuing austerity. Yes, balancing the budget is a priority for Francois Hollande. I think what he is going to try and change is the way they do that and the emphasis they place on growth.
Francois Hollande is not just about austerity, it’s about getting growth to return to the Eurozone. It’s about having measures to create more growth, which will in turn help get rid of the budget deficit. That’s what he is going to insist on at the European level. He is also going to take steps to achieve that at the national level as well.
Q: How is that growth going to come about because we have seen some of the data coming out of Europe and it’s not just the periphery, the core is getting impacted as well. The data both on Germany and France seems to be getting weaker. What impact do you think Hollande’s policies will have on the growth prospects of France itself?
A: I am not an economist, so I am not best placed to answer that question. But, according to his own estimates he will manage to improve the prospects in the country very well of course. But, most of the consensus seems to be that his estimates are over ambitious.
Q: The relationship between France and Germany has been the driving force of the attempts towards recovery in Europe. If Hollande were to come to power, how is it going to impact the France-Germany equation?
A: Yes, I think it has to. I mean there has been a lot of speculation in the press that Hollande and Merkel might come to clash over euro zone issues. But, I think France and Germany is going to continue to be the central force in the euro zone and in the European Union.
Its essential that they get on and I think that Hollande is a pragmatic Pro-European politician. He is going to cooperate with Germany and the others in the euro zone and beyond to make sure that the euro zone survives and the European Union (EU) gets out of the crisis it is facing at the moment.
I think Merkel is ultimately extremely pragmatic. I believe, they will both be very keen to work together. Yes, there might be initial disagreements. There will almost certainly be negotiations that might become heated and somewhat difficult. Finally, I am fairly certain they will come to an agreement.
Q: Is Hollande likely to back the fiscal treaty that the EU nations are expected to agree upon over the course of this year at least because he seems to have suggested growth clauses that need to be included in that treaty or else he won't back it?
A: I think he has actually promised to renegotiate the fiscal treaty. That’s probably unlikely. Not least because of the political capital that was expended by many European leaders to negotiate a treaty in the first place. Also it hasn’t been ratified by everyone but it has been ratified by a couple of countries.
It’s going to be quite difficult to wade in and try to renegotiate the fiscal compact. I think what's more likely is some kind of European agreement on a growth compact including growth measures at the European level, but not as part of the fiscal compact, as a separate agreement, as a separate document trying to boost growth at the European level. I think a compromise like that is much more likely.
Q: He also advocates a stronger role for the ECB when it comes to rescuing peripheral countries, that’s something that Germany doesn’t agree with either?
A: Yes indeed. I think Hollande has made it quite clear that he would like to see the ECB act as a lender of last resort for the euro zone. Just yesterday in the debate with Sarkozy he spoke of how odd it is that the ECB will lend to European banks at very low interest rates and yet the European Union will lend to troubled economies at much higher interest rates than ECB will lend to banks.
I think he would like to see that the ECB act as a lender of last resort. But, Merkel and the Germans are not going to let that happen. It’s against the rules of the ECB and I don’t think they are likely to move on that. And just because the Germans will be so intransigent on this issue, Hollande is likely to ultimately concede and there will be a compromise and cooperation.
Q: So, he has got two big challenges – one maintaining that relationship with Germany and second, being able to trigger off some degree of growth in France or at least restore the growth agenda. Is he going to have enough political strength to be able to push that through?
A: I think it depends to some extent on what happens in the legislative elections which will take place next month. If he has a strong majority in the parliament then I think it’s possible.
He’ll push through his agenda but let’s bear in mind that he has talked a lot about spending commitments and measures for growth in his campaign. He has also laid heavy on balancing the budget deficit, getting rid of the budget deficit by 2017. Clearly he is going to have to announce some spending cuts and he is going to have to flesh out the bones of his plans to balance the budget.
Q: If Sarkozy does win on Monday, will it be a very different Sarkozy in power because in a sense he has come so close to losing? So do you expect big changes in his political as well as economic policies?
A: If he wins and it’s a huge ‘if’ I think, he would see his validation of ideas that he has been pushing all along. He would see it as a mandate to continue with the promises that he has made in the run up on this election. I don’t think we would suddenly see a radically different President Sarkozy, should he win a second term.