"Ne me quitte pas. Il faut oublier tout peut s'oublier qui s'enfuit déjà. Oublier le temps des malentendus et le temps perdu a savoir comment oublier ces heures qui tuaient parfois a coups de pourquoi le cœur du bonheur. Ne me quitte pas, Ne me quitte pas." [Jacques Brel]

Chronicles

On April 19th, Nicolas Sarkozy said that France would be "sanctioned if it makes wrong economic choices," regarding this Sunday elections. I was surprised by the tone of the statement while I was remembering the Jacques Brel song “Ne me quitte pas”. I imagined Sarkozy going to pieces and claiming French people to avoid last years of misunderstanding and asking to vote him and trust his figure.

What's the matter with elections in Europe? The problem would be focused on austerity or growth.


On the other hand, Francois Hollande has boosted his possibilities from the “growth against austerity” motto, his hobbyhorse. But experts like Boris Schlossberg, Manager Partner at BKForexAdvisors, are concerned about his real intentions as maybe Hollande ideas are just another Trojan horse to catch votes, "market will wait to see if he really begins to implement what he says or whether he was just showboating for politics," Schlossberg comments. In the same line, Adam Narczewski, XTB Hungary's Director, expects "Hollande to ease up his populist plans after he becomes president."

"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." Schlossberg


But the days passed and this weekend France is called to vote for the next 5-year presidential term. Current French President Nicolas Sarkozy or Socialist Francois Hollande, that's the question, and, despite the latest poll showing Hollande at 52% and Sarkozy at 48%, all unknowns are on the table, specially with the Marine Le Pen voters free to choose, and both candidates are asking people to "ne me quitte pas" vote now.

All market players have assumed Hollande victory but I'm not sure about it. With 17% of the voters in the first round, Le Pen has a lot to say despite the freedom of vote that she gives to her voters. Remember that Hollande had just 28.63% of voters while Sarkozy had 27.18%.

"A surprise victory for Sarkozy will certainly be euro positive" Elam


FXstreet.com has been talking with experts across the world about these key elections and their potential impact in the markets. "I think that Hollande will score a marginal victory over Sarkozy," affirms Yohay Elam, analyst for Forex Crunch. And Schlossberg agress: "I think you will see small selloff to Hollande victory," and as "Francois Hollande is maintaining his lead in the polls ahead of the election," says Christopher Vecchio, analyst for DailyFX, "the EURUSD is likely to come under pressure in the near-term."

"If we may see a victory of Hollande, we will see downgrades in France, which is going to be bad for the euro." Ponsi.


But Elam believes that as far as the victory will be marginal the market has already priced in, "so it will not be a big shock to the markets by itself." That said, it is certainly for all players in the market that with a Hollande's victory "the EURUSD is likely to come under pressure in the near-term," as Vecchio well says.

The Euro is likely to be on pressure next weeks as "If we may see a victory of Hollande, we will see downgrades in France, which is going to be bad for the euro," affirms Ed Ponsi, President of FXEducator LLC. And then Ponsi Concludes that "Your are going to see the euro under 1.30 again against the dollar"

Why does market assume that a lefty victory means pressure on Euro (or whatever currency in the world)? It could be related to the old adage that says the right is thrifty and the left is spendthrift but is it really the times we are living in?

"No contradiction between fiscal compact" and growth. Draghi


Mariano Rajoy's government arrived to Spanish Moncloa at the end of 2011 with austerity as a flag and now the market is concerned the most by the Iberian country. Italy was intervened but problems remain and Greece is a real tragedy. The only country who said "No" to market was Iceland, now the Northern country has an incipient but healthy growing economy.

So, what's the matter with elections in Europe? The problem would be focused on austerity or growth. I remember Gayle Allard saying that market has to decide between austerity or growth but Mario Dragui said on Thursday that there is "no contradiction between fiscal compact" and growth.

"The “austerity vs. growth” debate is being oversimplified – these economies aren’t just going to start growing once the austerity measures are lifted," states Vecchio. "The periphery Euro-zone nations were having trouble growing before austerity was implemented, and they remain in trouble now after the fact." However Schlossberg thinks that "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."

"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." Vecchio


"The debate had grown from local elections discussion to a European size causing even Angela Merkel supporting Sarkozy," says Narczewski and he points that it was "a move not well received in France." Within an hypothetical Hollande victory, Narczewski assumes that the socialist leader "will be in a strong negotiating position against Merkel, backed by countries that oppose Merkel’s philosophy."

In the middle, Yohay comments that "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."

"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." Narczewski


Is market asking European leader to try out another strategy? Maybe or maybe not. But certainly Francois Hollande has smelt the fragrance of being the growth champion and he is using it to win votes: Hobbyhorse or Trojan horse? Wait and see mode on.

"I am sure relations [between Merkel and Hollande] will be much less friendly [than Merkel and Sarkozy]," says Schlossberg but "Germany needs the euro more than anyone else for its export machine," continues Elam, and "it will eventually understand that making compromises will better serve it than the current policy," Elam concludes.

Greece faces another event

Greece also has elections this weekend, with a jeopardized situation in the Hellenic country, markets are concerned about the possibilities of forming government after elections or the necessity to have new elections as soon as June.

"I believe that Greece will leave the euro-zone in 2012." Elam


"It looks increasingly likely that Greece's election will end without a clear winner and coalition partners may be having trouble coming together," says Adam Button from Forexlive. "The WSJ is reporting that Greek parties are weighing another election in June if the vote doesn't provide a workable solution."

Yohay Elam thinks Greece would become the new Belgium in terms of government coalition, "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."

Schlossberg states that "Greece is a basket case regardless of what happens in elections." and he added the the Hellenic country "needs to have its debt forgiven like a Third world country."

"Greek voters are well-aware that a vote for either the New Democracy party or PASOK (socialists) will be a vote for more austerity." Vecchio


Vecchio thinks that 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."

Finally, Yohay Elam concluded that "I believe that Greece will leave the euro-zone in 2012."


The European Debt Crisis Chronicles