Exclusive Video Interview with Ed Ponsi
"Hollade would perhaps try to push away from austerity that is probably what most people want but it might probably not be the best thing for France"
"If we may see a victory of Hollande, we will see downgrades in France, which is going to be bad for the euro"
"I think in the end Sarkozy will prevail because people would realize he's not done a bad job at all"
"Your are going to see the euro under 1.30 again against the dollar"
Experts answered these specific questions:
- What do you think will be the results in the French elections? How the market will see a hypothetical Hollande victory?
- What do you think about the Austerity vs Growth debate? How could the relationship between Merkel and Hollande be?
- Do you think Greek election will provide a coalition government or that the country will need to run another election in the middle term?
- I think that Hollande will score a marginal victory over Sarkozy. This is mostly priced in, so it will not be a big shock to the markets by itself. Perhaps a landslide victory with a margin of 10% or more will hurt the euro. A surprise victory for Sarkozy will certainly be euro positive.
- The "austerity only" policy in the euro-area will disappear with a victory for Hollande. This policy proved self-defeating and after a short-term shock, raising the growth prospects will be euro-positive. "Merkollande" will not be as cozy as "Merkozy", but I think that the gaps will be bridged. Hollande is no revolutionary, and Merkel will eventually need to change her policy. When German opposition SPD will adopt some of Hollande's policy she'll have to adopt some of it as well. In addition, Germany needs the euro more than anyone else for its export machine. It will eventually understand that making compromises will better serve it than the current policy.
- The Greek elections are complicated. I think that mainstream, pro bailout ND and PASOK will not have a majority in the parliament, and that ND leader Samaras will try to form a right wing government which will try to renegotiate some of the bailout conditions. Greece still needs to pass more austerity for 2013 as a condition to receive bailout funds. Even if mainstream parties win a majority, a coalition between them will be hard to form. I think we are headed to a long period of Greek uncertainty and another round of elections in June is certainly on the cards and may be part of this uncertainty. I believe that Greece will leave the euro-zone in 2012.
- Francois Hollande is maintaining his lead in the polls ahead of the election, usually by a margin of 4% or more. When all is said and done, I do think that the vote will be close, but ultimately Mr. Hollande will walk away with the victory. Given Mr. Hollande’s position towards the European Union Fiscal Compact, if he wins, the EURUSD is likely to come under pressure in the near-term.
- The “austerity vs. growth” debate is being oversimplified – these economies aren’t just going to start growing once the austerity measures are lifted. The periphery Euro-zone nations were having trouble growing before austerity was implemented, and they remain in trouble now after the fact. Fiscal consolidation is the only way the heavily indebted nations will reign in their debt burdens barring supranational fiscal union.
- I do think a permanent government will be elected (no medium-term elections), but it will consist of members outside of the historical New Democracy-PASOK relationship. Greek voters are well-aware that a vote for either the New Democracy party or PASOK (socialists) will be a vote for more austerity, so there exists great potential for fringe extremist factions to garner a significant number of votes. The biggest concern would be if there’s a strong vote for any of the far-right groups, as that would signal nationalism is rising and would thus threaten Greece’s place in the Euro-zone.
- I think you will see small selloff to Hollande victory but market will wait to see if he really begins to implement what he says or whether he was just showboating for politics.
- I think the Austerians are leading us into disaster. There is a reason why no government has ever followed the Austerian model - it never worked and resulted in Hitler. No idea how Merkel feels about Hollande, but I am sure relations will be much less friendly
- Greece is basket case regardless of what happens in elections. It needs to have its debt forgiven like a Third world country.
- It looks increasingly likely that Greece's election will end without a clear winner and coalition partners may be having trouble coming together. The WSJ is reporting that Greek parties are weighing another election in June if the vote doesn't provide a workable solution.
- It's Not just Sarkozy that faces a "stinging defeat", as the UK press likes to call them, this week. Merkel does too, as her coalition faces a test in regional elections this weekend. With Greece in the mix as well, the incumbent parties could be in for a string of "stinging defeats". Not likely to do the euro any favors...
Yohay Elam, ForexCrunch:
Christopher Vecchio, DailyFX:
Boris Schlossberg, BKForexAdvisors:
Adam Button, ForexLive, on Greece
Jamie Coleman, ForexLive, on France
Adam Narczewski, XTB Hungary:
- The elections results in France should not be a surprise and the new president will be Francois Hollande. Europe is on the verge of big changes and these elections are another part of them. It has to be honestly said the Sarkozy did not do much for the country during his presidency. One of the few reforms his government did was increasing the retirement age to 62, which by the way, Hollande plans to reverse back to 60. The situation in France has worsened recently with rating agencies downgrading the country’s debt. That also made Sarkozy’s position in the "Merkozy" duo less important, as if it was not known that Merkel is the leader in this journey. I believe the elections results (Hollande as president) are already discounted by the market. The polls and first round elections only confirm who the winner will be. That is why I do not expect the elections’ results to have negative impact on the market. Hollande’s victory will not be a shock to the market, it is expected. On the other hand, if on Monday market sentiment is really bad, risk aversion increases causing market declines, investors and analysts will be probably pointing out at Hollande as one of the causes.
- The Austerity vs Growth debate has been one of the main points of the elections in France. The socialist candidate, Hollande, had made growth a main point of his campaign. Austerity programs have been slowing down and now growth action are required to wake up the economies. The debate had grown from local elections discussion to a European size causing even Angela Merkel supporting Sarkozy, a move not well received in France. The "Merkozy" duo has been leading austerity programs in Europe and in Hollande they see a danger that can stop them. But to be honest, how long can those programs run? How much stimulus is needed for economies to be back on the growth path? Even Mario Draghi, ECB’s president, stated on his monthly policy meeting that growth has to be put back in the agenda. Austerity programs cannot run forever and I do not believe Merkel and Sarkozy have/had any vaible plans for the transition to growth . Many expect the relationship between Merkel and Hollande to be harsh. It is true that Hollande’s political program is very socialistic, some may call it even radical (utopian?) and not achievable – reducing retirement age to 60, keeping the 35 hour working week, higher taxes for the rich, penalties for French companies moving their production abroad, creation of 150 thousand new work places - according to some calculations, its implementation would cost between 20-25 billion EUR. I expect Hollande to ease up his populist plans after he becomes president. I know he wants the best for France but I believe he knows what is going on in Europe right know. He knows that Europe will look up to him since he will be replacing Sarko. After winning the elections he will be in a strong negotiating position against Merkel, backed by countries that oppose Merkel’s philosophy. It also has to be remembered that Chancelor Merkel is under pressure in her own country and that in 2013 the German government might look different than now. I do not see the creation of the "Markollande" duo, but I see more cooperation than many expect.
- Despite the recent polls (from over a week ago), giving a majority coalition government to the Socialist PASOK and the conservative New Democracy parties (both supporting the government of Lukas Papademos), the election results in Greece could be surprising. PASOK and the New Democracy parties support the current reforms, so if there will be chance to form a coalition, the market may receive well this information and it could be a positive impulse for the markets (hoping for more reforms that will help the country to regain growth). A different structure of the government after the elections will be received negatively – investors will be afraid that Greece would stop implementing the reforms and that the „Greek tragedy „will escalate”. It is very difficult to answer the question whether the elections will bring a coalition government or another round of elections will be needed. Why? The simple answer is: this is Greece we are talking about But another factor that makes it difficult to forecast, is the fact that there are no new polls that we can analyze – it is forbidden to publish official polls two weeks before the elections.