Sarkozy wins back party leadership, but road to French presidential election remains very long

Nicolas Sarkozy took a further step on the road to his political comeback over the weekend, as he won back the leadership of France’s centre-right UMP party. The former French President secured 64.5% of votes in an online survey of UMP members, finishing well ahead of former Agriculture Minister Bruno Le Maire (29.2%) and outsider Hervé Mariton (6.3%).

Sarkozy was always going to win, but the outcome is most certainly below what he was hoping for. In 2004, he had sailed through the leadership election with over 85% of the vote. Still, he holds again the reins of his “political family” – to use his own words – and has already made at least two interesting announcements:

• The UMP will change name before the next round of local elections in March 2015. 

• He will set up a committee of former UMP prime ministers to help him manage the party – although the idea has reportedly not gone down particularly well with François Fillon, one of the former prime ministers supposed to sit on this committee. 

On this blog, we have noted how Sarkozy’s political comeback has the potential to really spice up the French debate over Europe. The former French President has this year repeatedly spoken of returning half of the EU’s powers to national governments. He also wants to scrap the EU’s passport-free Schengen travel area in its current form and replace it with a more selective ‘Schengen II’, which could only be joined by countries adopting the same immigration policies.

Sarkozy’s political strategy looks pretty clear: take a tougher, more ‘realist’ stance on Europe and immigration to stop the UMP losing voters to Marine Le Pen’s Front National. What is far from clear at this stage, though, is whether the new line will draw unanimous support from the rest of Sarkozy’s party.

Another important point to keep in mind is that the victory in Saturday’s party leadership poll does not automatically make Sarkozy the centre-right candidate for the 2017 French presidential election. A separate ‘primary election’ is due in 2016, when Sarkozy is going to face at least one much tougher rival: former French Foreign Minister Alain Juppé.

How that duel will end is anyone’s guess, but recent opinion polls suggest that Juppé would have a better chance of victory in case of an ‘open primary’ – where members of smaller centrist parties can vote alongside with UMP members to elect a single centre-right presidential candidate. Sarkozy has so far spoken in favour of an ‘open primary’, although he looks reluctant to involve the Democratic Movement (MoDem) in the exercise. The centrist party led by François Bayrou actually endorsed François Hollande in the run-off of the 2012 presidential election against Sarkozy, and Bayrou has made no secret of his support for Juppé as the centre-right candidate in 2017.

Finally, Sarkozy remains (directly or indirectly) involved in a series of pending legal cases that may well dog his campaign.

The road to 2017 is still very long. 

Sarkozy held in custody: A blow to his mooted comeback and a gift to Le Pen?

Nicolas Sarkozy has been detained for questioning by the French judicial police this morning, over allegations of influence-peddling (trafic d'influence). No formal charges have been brought so far, but prosecutors are investigating whether Sarkozy had promised to help a high-ranking French judge get a lucrative job in Monaco in return for insider information about other investigations relating to the financing of Sarkozy's presidential campaign in 2007.

This story emerged from the wiretapping of phone calls between Sarkozy and his lawyer, Thierry Herzog, that French prosecutors had started last year as part of a separate case - the alleged financing of Sarkozy's presidential campaign by the Gaddafi family.

According to the French media, the conversations revealed that Sarkozy and his lawyer were not only receiving confidential information on the on-going investigations, but were even aware of being wiretapped - given that Sarkozy had reportedly bought a new mobile and was using it to talk to his lawyer under the pseudonym Paul Bismuth.

We will see how the investigation evolves, but it could have important implications. Over the past few months, Sarkozy's political comeback has looked increasingly like a matter of when, not if. A few of his closest allies seem to think the former French President is the only one who can preserve the unity of the centre-right UMP party.

Indeed, Sarkozy could decide it is time to come back precisely in light of this scandal - engaging in a Berlusconi-style crusade against politicised judges. But it is far from clear whether the French electorate would buy this.

In the meantime, Front National leader Marine Le Pen is waiting in the wings, and could come out as the big winner. France's last two centre-right presidents, Jacques Chirac and now Sarkozy, have both been hit by legal scandals. It could be a great argument to persuade disaffected voters to shift to Front National. 

Sarko drops a bomb: At least half of EU powers should return to member states

Three days ahead of the European Parliament elections in France, former French President Nicolas Sarkozy has written a bombshell piece on Europe for French weekly Le Point and German daily Die Welt - calling for "at least half" of current EU powers to be handed back to member states.

Here are the key bits:

We need to look at today's European Union with lucidity. It can't work at 28 as it did at six, nine, or even twelve [member states]. I sincerely believe that there will be no alternative to a drastic reduction of the extent of [the EU's] competences. The situation today borders on the ridiculous and condemns us to powerlessness. 

[...]

Europe has ended up creating an administrative labyrinth, with the Commission and its departments, which indeed need to keep themselves busy. The result: hundreds of directives about the most various and often the most pointless issues. 

Today, we need to scrap at least half of [the EU's] current competences - which will have to be taken on by member states tomorrow. We need to regroup Europe's competences into less than ten basic priority policy areas: industry, agriculture, competition, trade negotiations, energy, research...

It would be unfair to use the Commission and its President as convenient scapegoats for our difficulties...That said, the [European] Commission should no longer have legislative competences because there’s a European Parliament, and it is only for it to legislate. 

On the eurozone vs EU-28 issue, Sarko writes:

Let's have the frankness to say that the myth of one Europe fell to pieces after the adoption of the euro by 18 of 28 [EU] countries. There's not one Europe anymore, but two. Furthermore, these two Europes today need to revise their strategies in different directions. More integration for the 18 [member states] that share their monetary sovereignty. 

[...]

At the same time, we need to stop believing the myth of equality of rights and responsibilities among all member states.

That means Sarkozy envisages a eurozone where bigger countries (especially France and Germany, ça va sans dire) have greater decision-making powers.

Finally, on immigration:

It is evident that we need to immediately suspend Schengen I [the EU's passport-free travel area] and replace it with a Schengen II, which member states could only join after they have previously adopted the same immigration policy.

On this blog, we've argued several times (see here and here) that the rise of Front National has pushed part of France's UMP, the main centre-right party, towards a more critical stance on the 'Europe' issue. It should be clear by now that David Cameron could find allies in France who could back his plan for an EU that does less, but does it better. 

However, the French presidential election is still three years away and, as we have said before, Cameron's biggest potential weakness is his 2017 deadline, which means some of his natural allies will not be in power to help him.

Marine means business: Front National makes big gains in French local elections

Yesterday was a big night for Marine Le Pen's anti-EU Front National, which emerged as the main winner of the first round of the French mayoral elections. The party won an outright victory in Hénin-Beaumont, a former mining city in northern France, and finished ahead in six other towns - where its score ranged from 27.69% (in Digne-les-Bains) to 40.3% (in Fréjus). 

In Marseille, the second most populous French city, Front National finished second with 23.16% of votes, behind the centre-right UMP (37.64%) - relegating President François Hollande's Socialist Party to third place, with 20.77% of votes.

We will have to wait until tomorrow evening for the final results. But, according to the preliminary figures made public by French Interior Minister Manuel Valls, the centre-right (that is, the UMP and its allies) won 46.54% of votes nationwide - well ahead of the centre-left (Socialist Party and allies) on 37.74%. So not exactly a night to remember for Hollande.

Le Pen's party was only running in 597 of the almost 37,000 municipalities up for grabs, and therefore won only 4.65% of votes nationwide. However, this is much better than in 2008 - when Front National only managed to run in 119 municipalities and won around 1% of votes nationwide in the first round. This suggests it may be consolidating as an electoral force at the local level.

The second round of the mayoral elections will take place on Sunday 30 March. Interestingly, several top Socialist figures (from Hollande's spokeswoman Najat Vallaud-Belkacem to Prime Minister Jean-Marc Ayrault) have called for the centre-right to support a so-called Front Républicain - whereby the Socialists, the UMP and other centrist parties join forces to stop Front National candidates prevailing in the second round. However, UMP leader Jean-François Copé has this morning dismissed the idea.

So unlike Geert Wilders in the Netherlands, whose PVV party saw its support decrease slightly in last week's Dutch local elections, Front National is on a clear upward path - and it would be no surprise if it came out as the largest party in the upcoming European Parliament elections. It will be interesting to see how yesterday's results will influence the campaign. We have already noted that several centre-right French politicians - including Nicolas Sarkozy himself - have embraced, at least in rhetoric, a less idealistic approach to 'Europe'. Given the Front National's strong showing, this is only likely to continue.

Did the EU instruct Rome to “unplug” Berlusconi?

If true, this is quite extraordinary.

Fabrizio Goria - business and finance correspondent of the Italian online news site Linkiesta - has recently taken a look back at the Italian crisis towards the end 2011. An English version of the article is available on the LSE's Europe blog. With Italian borrowing costs reaching record highs, he writes that European Commission President Jose Manuel Barroso instructed the then Interior Minister Roberto Maroni (of Lega Nord) to "unplug" Silvio Berlusconi, who was the Prime Minister at the time.

Goria writes:

"In those dark days, with the 10-year Bund-BTP spread close to a historical peak, a unique incident occurred. During an institutional meeting, the then minister of internal affairs Roberto Maroni received a phone call. It was towards the end of October. People attending that meeting, a select group of associates, reported that he turned pale. The call came from José Manuel Barroso [who] was very clear with Maroni: “I don’t want you to take this personally. Neither you nor all other members of the government. But you need to “unplug” Berlusconi.” And in that moment Barroso revealed what the strategy was: a flurry of declarations against the then prime minister. From all fronts, from every European policy maker. The message to be sent was one and one only: Berlusconi is inadequate."

Ten days later, Berlusconi resigned.

It was extensively reported at the time that German Chancellor Angela Merkel and then French President Nicolas Sarkozy (who are obviously much more powerful than Barroso) were putting enormous pressure on Berlusconi to take a hike - and it was always assumed that Berlusconi's departure was at least in part due to European pressure.

However, this would be the most explicit intervention known to date. Now, we haven’t seen this reported anywhere else – and given that it is evidence that the EU fell just short of toppling a democratically elected leader – we'd expect it to be all over Italian and international media.

So we take it with a pinch of salt – but, as always, we’re keen to know what our readers think…

Le Monde's 'Up yours Delors' moment: Barroso is 'a 57-year-old chameleon in search of a good job at NATO or the UN'

As we reported in our daily press summary, European Commission President José Manuel Barroso has drawn criticism from the French government after he described France's insistence to exclude the audio-visual industry from EU-US trade talks as "completely reactionary". Now, the French press has caught up as well.

And it's pretty harsh.

Le Monde has a tough editorial under the headline, "Monsieur Barroso, you're neither loyal nor respectful!" We thought it was worth translating it almost in its entirety. Here goes,

For once, the Europeans were united vis-à-vis the Americans […] The President of the European Commission, José Manuel Barroso, has torpedoed this unity by stating, right before the start of the [G8] summit, that France’s position on the cultural exception was “reactionary”. 

It is of little importance to know whether France is [reactionary]. Or whether or not one needed to exclude, in the name of the cultural exception, audio-visual services from the negotiating mandate handed to the European Commission. In order to be ready, the 27 [EU member states] negotiated at length and until late at night on Friday, 14 June. France ended up imposing its views and scored a political victory.

And whether Mr Barroso was satisfied with this outcome or not is of little importance, too. He’s the President of the Commission and is bound by the mandate he’s been given by the [member] states. By denigrating the agreement the day after it was concluded, Mr Barroso is not acting as the guardian of the [EU] Treaties, as his mandate requires.

[…]

The Trade Commissioner, Belgium’s Karel De Gucht, has adopted a comparable attitude. He didn’t manage to impose his views. A bad gambler, he pretends that it will be possible to re-introduce audio-visual services in the negotiation. That’s empty talk: everything is possible under unanimity. In reality, France retains its veto on the issue. But Mr De Gucht has an excuse: he will negotiate with the Americans and is afraid that the latter retaliate by excluding from the negotiations some domains that are strategic for the Europeans. He wants to be able to go back to the 27 [EU member states] to amend his negotiating mandate, if necessary.

Mr Barroso, on the other hand, seems to pursue far more personal ambitions. During eight years, the President of the [European] Commission has stood out for his ductility. Defender of small states as Portuguese Prime Minister, a liberal at the time of his appointment in Brussels ahead of the 2008 crisis, pro-Sarkozy during [former French President] Nicolas Sarkozy’s presidency, and incapable, since, of taking the smallest political initiative to revive the Union, he has accompanied the decline of the European institutions.

Today, aged 57, this chameleon is searching for a future. In search of a good post, at NATO or the UN – who knows? – he has chosen to pander to his Anglo-Saxon partners, the British Prime Minister and the US President. At the head of the Commission, Barroso has been a good reflection of Europe: a decade of decline. 

This is "Up yours Delors" territory - and arguably the strongest attack on Barroso until date.

A European Commission spokesman was quick to point out that Barroso didn't have France in mind when he made his remarks. There are several layers to this episode, but if anyone thought that the French are becoming any less sceptical of the Commission, they are mistaken. If anyone thought that turning the Commission into an all-powerful eurozone budget police was only one German election away, that is...

Meanwhile, in Italy...

Italian daily La Repubblica had an interesting story over the weekend. Apparently, Italian Prime Minister Mario Monti and his team are trying to win support for watering down the EU's deficit and debt rules.

Italy is suggesting that 'virtuous investments' (i.e. public spending aimed at boosting 'growth') should not be counted when calculating a country's deficit and debt under the EU's budget rules (3% deficit, 60% debt-to-GDP ratio). The same exception should be applied to the re-payment of money currently owed by the various public administrations to private firms - some €70 billion in Italy's case.

The always well-informed Marco Zatterin - Brussels correspondent for La Stampa - writes on his blog that Italian Europe Minister Enzo Moavero Milanesi has already been talking to EU Commissioners for Internal Market (Michel Barnier), the Budget (Janusz Lewandowski), and Industry (Antonio Tajani, Italy's man in the Commission) over the past few days. EU Economics and Monetary Affairs Commissioner Olli Rehn is reportedly willing to consider the proposal. The Monti government hopes that EU leaders will discuss the proposal at the European Council at the end of June.

These exceptions, Italy's reasoning goes, would make the fiscal treaty "more sustainable" once it comes into effect. But is this really a good idea? As we pointed out before (see here and here), the fiscal treaty already has some serious credibility issues and has already been watered down.

Allowing for some debt to be swept under the carpet doesn't exactly inspire confidence. Do people remember how we got here in the first place?

Meanwhile, mayoral elections took place in Italy over the weekend (we understand if you didn't notice given everything else that was going on during the eurozone's 'Super Sunday'). Still, a couple of interesting facts are worth flagging up:

• Candidates from Silvio Berlusconi's People of Freedom party did not make it to the second round in any of the bigger cities where elections took place (Genoa, Palermo, Parma and others). Following the results, the party's Secretary General, Angelino Alfano, said that backing for Monti's government continues, but no more 'mini-summits' with the centre and centre-left leaders supporting Italy's technocratic cabinet in parliament will be held from now on. This could have an impact on Monti's ability to push through his reform agenda, especially since he has no electoral mandate to fall back on when things get tough;
 

• Lega Nord, Berlusconi's former ally, also did quite badly in the wake of the scandals that forced its leader Umberto Bossi to step down last month. Lega Nord managed to keep Verona, but lost several towns traditionally considered strongholds in the Lombardy region;
 

• Turnout was about 67% - almost 7% lower than in the previous local elections;

• The Movimento Cinque Stelle (Five Star Movement), led by Italian stand-up comedian Beppe Grillo (in the picture) came out as the real winner. Its candidates achieved double-digit percentages in a couple of important cities (including Genoa, Beppe Grillo's home town, and Parma, where the Five Star Movement's candidate Federico Pizzarotti made it to the final run-off, with 19.5% of votes). A political maverick, Grillo has been campaigning for the need to clean up Italian politics, for instance by barring convicted people from running for the Italian parliament. Most interestingly, he has recently been claiming that Italy should drop the euro (but remain in the EU) and refuse to pay back at least part of its public debt. 

The general elections will be a different ballgame altogether, but it's interesting how the Italians, too, are now looking for something different.

Europe awaits the next French President

Sunday will be a big day in EU politics: both the Greeks and the French go to the polls.

Ahead of the French elections, we've published a briefing looking at the possible impact of the election results on Europe. In particular, we note that,

"No matter who wins, France could well become a more difficult and assertive EU partner, though both candidates are likely to struggle to deliver on their various promises to take on Europe, such as re-negotiating the fiscal treaty and tougher border controls. The Franco-German axis will continue, but a Hollande victory in particular will mean a more unpredictable relationship and therefore potentially more uncertainty on the markets. Clearly, under Hollande, Germany will find it far more difficult to push its vision of a eurozone based on strong budget discipline.”

Do check out the full briefing here, and a brief summary here.

Apart from the obvious impact on the Franco-German axis, another thing is worth flagging up. Have a look at the graph below.

The graph illustrates that, beyond the rhetoric, the budget plans of the two candidates do not differ radically with respect to the impact on France’s debt reduction and budget outlook. The graph looks at how much the two candidates’ plans are meant to reduce French debt by – compared to the IMF projections and an adverse scenario estimated by Open Europe. Virtually, the only difference between the two is Hollande’s decision to delay a balanced budget by one year, and his more optimistic growth assumptions. It is not clear why Hollande’s growth expectations are more optimistic, given that the only difference is a slight delay in austerity – something which in turn casts serious doubt as to whether Hollande can actually deliver what he has promised. The IMF predictions highlight that both plans may be slightly optimistic but not impossible. Despite concerns over Hollande’s economic policy and its impact on the euro, if he manages to achieve roughly the debt reduction he sets out in his plan, it would clearly be a positive thing for both France and the euro.

However, as the adverse scenario highlights, any slippages (particularly with regard to the primary surplus) could bring France’s debt sustainability into question and also lead French borrowing cost to increase markedly. This would in turn shake confidence in the entire eurozone – not least since any French downgrade will also effectively reduce the lending capacity of the eurozone’s bailout funds (the EFSF and the ESM). Such slippages could be caused and/or exacerbated by any another crisis in Spain, to which France would be heavily exposed...

Sneaking in on the Franco-German axis (without lecturing)

La Repubblica yesterday claimed that Italian PM Mario Monti sees opportunity in a Francois Hollande victory in the French Presidential elections. The opportunity lies not so much in Paris as in Berlin.

Monti reportedly thinks a Hollande victory would weaken French ties with Germany, over issues such as the role of ECB, the fiscal treaty and government spending. Berlin will look for allies, so the logic goes, which presents a chance for Rome to "sneak in". La Repubblica's interpretation is that Monti wants to "replace" Sarkozy - or at least the role Sarkozy currently plays in the Franco-German axis. 

All highly speculative of course, but an interesting prospect, which should serve to stimulate thought in London as well, i.e. could an Hollande victory help strengthen the London-Berlin link? Possibly. But, as we argue over on the Telegraph blogs, for this to happen, London needs to sharpen its diplomatic tone and posture - which includes avoiding lecturing the Germans on what needs to happen with the euro. Though we share his frustration with the euro crisis, David Cameron again came close to doing this on the BBC's Andrew Marr show on Sunday.

We argue "the reality is also that the UK has very limited influence over events and decisions in the Eurozone. This is why lecturing eurozone leaders is at best pointless, and at worst outright counterproductive."

We go on,

"Given its limited clout in euro politics, what the UK says is unlikely to sway German Chancellor Angela Merkel in one direction or the other. In other words, it creates frustration in Berlin in return for no clear diplomatic benefit. Talk of large-scale ECB intervention or debt pooling goes against not only promises that were made to the German electorate when the single currency was forged, but also against the very corner-stone of the German economic model: sound money. With such lecturing, can the UK then complain when the Germans show limited willingness to understand the need for a vibrant financial services industry, an integral part of the UK’s modern commercial identity?

It’s particularly bad politics as the UK now has an opportunity to strengthen ties with Germany. Francois Hollande – a Keynesian who wants to spend his way out of the crisis (which may be more talk than action) – looks set to win the French presidential election. Cameron won’t break the Franco-German axis – nor should he try to. But he could create a lot of good will in Berlin by throwing his weight behind a Europe based on sound money and living within one’s means, not least by taking strong action at home, while making the case for supply-side reforms where appropriate. Whether you like it or not, German buy-in is essential if Britain wants to achieve a new and sustainable relationship with the rest of Europe. It would be silly to let loose talk undermine a new Anglo-German deal.  Leave the Keynesian lecturing to Ed Balls."

Guess who?

Here's a game for you. Guess who said the following: 

11 March (part one)

"We can't leave the management of migratory flows only to the technocrats and the courts. We need a common discipline for border controls. It must be possible to sanction, suspend or expel from [the EU's border-free area] a non-compliant country."

11 March (part two)

"Only firms which produce in Europe will benefit from Europe's public money."

23 April

"[We] don't want a 'colander Europe' anymore. This is the message I've heard. A Europe that doesn't control migratory flows is finished."

27 April

“I propose that, if we have not obtained reciprocity with our biggest [trade] partners at the European level within one year, we apply the following rule unilaterally: We will reserve all our public markets.”

29 April

"Europe has let the nation state weaken too much. Nowadays, the countries that believe in national spirit are the countries that make gains...Without borders, there's no nation, no state, no republic, no civilisation."

Pretty tough stuff. So who is it? Someone from the UK Independence Party? An activist form the (True) Finns? An MEP from Lega Nord? A eurosceptic socialist?

All wrong. It's Nicolas Sarkozy (in his efforts to fish in Le Pen waters).

But no one would dare call him 'anti-European' of course...

How real is Hollande's veto threat?

As has been widely reported, Francois Hollande - the socialist contender for the French Presidency - gave a major speech yesterday. Unsurprisingly, there were a few points thrown in that won't go down particularly well in Berlin or Frankfurt. Perhaps most interestingly, in reply to a journalist’s question on the EU fiscal treaty, Hollande answered,

“Ireland is about to have a referendum on the treaty, we are not sure what the result will be. We are all aware that Ireland is capable of saying no. So there will be some form of renegotiation. Will the treaty be modified? I hope so. Will another treaty be drafted? That’s part of negotiation. But the treaty in its current state will not be ratified by France”.

 So Hollande's veto-threat still stands. He also reiterated,

"[I am] not in favour of a constitutional golden rule. I’ve been saying it for months. So there will not be any changes to the French Constitution on this issue. However, if I am the next President, and the Parliament is in favour of this, there will be an organic law which will enable our budget to be rebalanced by 2017." 

In addition he tried to claim that the calls from ECB President Mario Draghi for a "growth pact" were in support of his own policy:

“The President of the ECB …has just said that the fiscal compact should be complemented by a growth pact. He even added that it would be useful to go back and prioritise education, research and big infrastructure. The ECB president will be useful to support growth through an interest rate policy. But he also adds support to… my announcement”

This is hardly how the matter was viewed in Berlin, where, in a veiled criticism of Hollande, Merkel said that "We need growth in the form of sustainable initiatives, not simply economic stimulus programmes that just increase government debt." This morning, Hollande also acknowledged on France Info that he didn't share the same "conception of growth" as Draghi, noting, "he calls for greater competitiveness, liberalisation and privatisation".

Yesterday, Hollande also laid out the content of his growth clause:

“The day after the second round, I will address a memorandum to all the European leaders and their governments on the renegotiation of the treaty. The letter will include four points. First, the creation of Eurobonds, not to mutualise debt, but to finance industrial infrastructure projects the size of which will be determined by the states. The second point will be to further liberalise the European Investment Bank’s financing opportunities, to enable a certain number of big projects already known to the bank to be financed. The third point will be the creation of a financial transactions tax, which will be determined by the states, and which will be set at a level to enable Europe to finance further development projects. Finally the fourth point will be to mobilise all the European structure fund leftovers, which are currently not being used, to finance States’ projects and help businesses." 

Of these four points, the creation of "eurobonds", which seems to build on the Commission's idea of 'project bonds' is by far the most interesting. The FTT proposal appears to be a rehash of Sarkozy's idea. It currently remains unclear whether Hollande would introduce it unilaterally, as Sarkozy is, when he encounters inevitable opposition from some EU member states. Nor is it clear at what rate he would set the tax, and which sectors he would target. Sarkozy's own version has been watered down since he made his pledge in December. Hollande's proposal for the use of unspent structural funds is hardly groundbreaking or exciting policy making. Nor does it necessarily help EU growth, as we have shown before.

The question now is whether Hollande will make agreement on these four policies a prerequisite for French ratification of the fiscal treaty. Of these four policies, eurobonds or 'project bonds' are supported by the Commission but could be difficult to get through national capitals, the FTT just won't happen at the EU-level while the two others are insufficiently interesting to warrant the renegotiation of a treaty (use of structural funds and EIB financing).  Our guess is that Hollande knows that his pledge to renegotiate the treaty comes at too great a political cost, and that he will settle for some mild language on these four areas in return for ratifying it.

Regardless, what France and Europe need now is to reassure the markets, and proceed with long-term reforms, rather than stillborn policies or palliatives to pre-existing problems.

German Media Looks For Meaning in French Presidential Election Result

The first round of the French presidential elections took place yesterday. As expected, the contest for the keys to the Elysée will  be between Socialist candidate François Hollande and Nicolas Sarkozy in the final run-off on 6 May (when, incidentally, the Greek elections are also taking place).

The key question now is what decision the almost 45% of French voters who didn't vote for Hollande or Sarkozy yesterday will make in two weeks' time. We will look at the significance of the result for the future of France, the eurozone and the EU as a whole in a separate post. For the moment, allow us to deploy our various language skills to round up how the media across Europe have responded to the results of the first round.

For all manner of reasons, particularly the future handling of the eurozone crisis, the reaction from Germany is particularly interesting. A leader in FAZ argues,

“[France] reveals a scary political landscape…A third of voters have voted for candidates with a completely alien view of the world, but who have in common one thing: explicitly nationalist, anti-European beliefs.”

Benjamin Reuter, Paris correspondent for German economic weekly Wirtschaftswoche, notes,

“The core concern should be that none of the candidates have discussed the hard reforms the country is facing...If France slides further into the direction of the abyss, the future of the euro will also be in danger - with or without Le Pen.”

An opinion piece in Deutsche Mittelstands Nachrichten sees yesterday's results as a “painful defeat” for Merkel’s vision of Europe, going on to note,

“The brutal rejection of the euro by the French, with 20% of the vote for [far-right leader Marine] Le Pen, can be described as an earthquake, whose tremors will above all else be felt in Brussels.”

A similar line is taken by Marco Zatterin - Brussels correspondent for Italian daily La Stampa. On his blog, he argues that Hollande is not, and should not, be seen as a threat in Brussels, but stresses,

“The pitfall is elsewhere. It's in the 20% of Le Pen-ists confirming that one in five voters in Europe are tempted by euroscepticism. This is a reality that the EU must stop underestimating.”

In Greek daily To Vima, columnist Giorgos Malouhos notes, perhaps hopefully, that Sarkozy began to lose popular support since he chose to “faithfully” support Germany's austerity-focused vision of the future of the eurozone, and argues,

“Sarkozy's defeat is not just his own: It's also the defeat of German policy.”

Spanish business daily Expansión is already looking at the final showdown. It argues,

“The victory of one or another candidate would also change the scenario in Spain. Hollande’s victory – and a Europe with ‘Merkhollande’ – would allow Spain to take it easier on its deficit reduction targets. On the contrary, five more years with Nicolas Sarkozy at the Elysée – and ‘Merkozy’ in Europe – would mean further tightening the rope around Spain’s neck.”

Johan van Overtveldt, Editor in Chief of Belgian magazine Knack, writes,

“Hollande's victory doesn't promise much good, neither for France nor for the euro...If Hollande pushes through his policy intentions, there will be guaranteed panic.”

Van Overtveldt draws an interesting comparison between Hollande and France's former Socialist President François Mitterrand, noting that, in the early 1980s, the latter “conducted a policy based on higher social charges, more taxes, limiting free entreprise, more government employment and nationalisation of various companies. This policy quickly resulted in a social-economic and financial catastrophe.”

But what about the French papers?

In French business daily Les Echos, Editorialist Jean-François Pécresse sees the glass half full, as he argues,

“Almost two-thirds of the electorate have voted for some form of economic realism, either on the right or on the left. The French are now offered these and no other options. The first one, championed by Nicolas Sarkozy, advocates a tested policy of quick deficit reduction via public spending cuts and support for competitiveness. The second one, embodied by François Hollande, contents itself with a slower path, which privileges taxes, especially on enterprises, and safeguards our old habituation to the welfare state. One [option] has yet to convince the French, the other one has yet to convince the markets.”

In La Tribune, François Roche sees Sarkozy moving further to the right on the road to the second round, as he argues,

“By dint of ploughing Front National’s land, Nicolas Sarkozy has made Marine Le Pen the big winner of the first round of the presidential election. He is now in a trap: if he wants to win the election, the only thing he can do is to try and attract people who voted for Front National in the first round…His only chance is to present himself as the champion of Front National’s own values.”

While the Le Pen phenomenon has understandably gained a large share of the column inches across Europe, it is perhaps some of the German media's reaction to the results that is the most revealing and significant in terms of the future. A Merkozy divorce would undoubtedly make things interesting and the fact that such a large share of the French electorate is clearly dissatisfied with the major parties has certainly caught the eye in Berlin - where many could begin to fear that France may not have the stomach to stay the course with Merkel's eurozone rescue strategy.

The battle for the heart and soul of the ECB continues

*Update 15:30* - It seems after a quiet morning, the predictable fightback has begun in the battle over the ECB, and its a double whammy. First of all, although not addressing the French election campaign specifically, Bundesbank president Jens Wiedmann has entered the fray, ruling out any ECB participation (large-scale bond buying) in an eventual Spanish rescue, arguing that:

"We shouldn't always ring the doomsday bell when long term interest rate of a country temporarily exceeds 6%"

Secondly, Focus magazine reports that tomorrow's FAZ will carry a joint article from a number of major economic institutions criticising the eurozone crisis management strategy and warning that the ECB's independence is at risk.

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If any German happened to be tuning into French radio station RMC this morning, we're sure they must have choked on their semmel - at least if they have any cash stashed away. This is what French President Nicolas Sarkozy had to say about the role of the ECB:

"What is the good value of the euro against the [US] dollar? If the euro rises too much, our exporters can’t sell anymore. They lose money because they’re not competitive, but also because the value of the euro is too high. This is a discussion that we need to have with the President of the ECB.”

He made similar remarks over the weekend, but the explicit call for an ongoing dialogue between governments and the ECB over the strength of the euro goes against everything Germany believes in.

In other words, the battle for the heart and soul of the ECB - which we have looked at extensively - rages on. On the dramatic side, a leader La Tribune argues that the “Merkozy” couple committed suicide on Sunday, after Sarkozy suggested revising the role of the ECB:

“In calling for a revision of the role of the ECB …Sarkozy has declared war on Germany for domestic political reasons”.

Yes, it's all part of election politics, but still, this tension at the heart of the Franco-German alliance won't go away as the eurozone continues to grapple with how, precisely, the euro should be backstopped. As a reminder of the battles ahead, yesterday we learnt that the according to Unicredit, the perceived inflation in Germany is now at 3.7%, compared official 2.1% figure.

Meanwhile, on the topic of the ECB promoting inflation 'growth', over on the Telegraph blog, we argue that:

"Economically, ECB-induced inflation would not present a long-term solution to the eurozone’s ills by any means. Although the initial effect would be make adjustment in the struggling countries easier, the eurozone would remain split into at least two parts running at very different speeds. What happens after the initial boost in demand, as the transfer is, per definition, time limited? Sure, there’s a chance that struggling eurozone countries use the time bought effectively to really reform their economies. However, on current evidence, a more likely outcome is some reform, but that the imbalances remain. Would the ECB then continue to spray money on the Continent to keep the party going?

In addition, such massive ECB intervention also sets the scene for further boom and busts in Europe, which again threatens confidence in the system. Fears of a housing bubble are already doing the rounds in Germany. In reality, maintaining a 4% – 5% target could actually turn out to be substantially more difficult than a 2% one, as people would naturally expect inflation to increase even further (managing inflation expectations is an absolutely vital task of central banks). Even if a higher average level of eurozone inflation were achievable the level needed in Germany to balance this out would likely be too high to be economically acceptable. Furthermore, the transition would be incredibly tricky as people’s expectations take time to adjust to the new "normal", possibly increasing volatility or even feeding through to wage pressure (and other second round inflationary effects).

Politically, such a change is very unlikely as long as the ghost of Weimar looms large over Germany. But if ever the Bundesbank is outvoted, beware what you wish for. If the perception is that the ECB is really turning into a “bad bank” that actively pursues inflation, that would be one of the few scenarios under which German support for the entire euro project really could evaporate."

Full piece here.

Is Sarkozy's tough talk on EU open borders hot air?

EU relations have become a pretty substantial source of contention in the French Presidential race. Socialist candidate Francois Hollande has been calling for a renegotiation of the fiscal treaty, recently signed by EU leaders, since January. Nicolas Sarkozy accused Hollande of playing politics with a sensitive treaty, as the renegotiation, he argued, amounted to rewriting the treaty in favour of the French Left, rather than taking into account the national interests of France. Meanwhile, EU leaders have waded into the debate, publicly endorsing Sarkozy in a move to protect the treaty from a further round of negotiations.

In a sudden turn of events, Sarkozy has replicated Hollande’s tactics, calling for a withdrawal from the Schengen treaty on open borders, if no serious reforms are undertaken. This follows complaints issued by six Schengen states, which have claimed that Greece's porous borders allow people to pass into Europe, legally or otherwise, unchecked. The Austrian Interior Minister compared Greece’s border policy to an “open barn door”.

Sarkozy argued that the reform of the agreement is “the only way to avoid the implosion of Europe” and added that

"It's urgent because we cannot accept being subjected to the shortcomings of Europe's external borders...But if I note within the next 12 months that no serious progress has been made in this direction, then France will suspend its participation in the Schengen accords until these negotiations are completed."

For good measure, Sarkozy also called for a "Buy European Act", under which European governments would be obliged to prefer European goods in their purchases, arguing, “that way companies which produce in Europe will benefit from European state money”.

Unsurprisingly, Hollande's camp was quick to fire back, with Pierre Moscovici, Hollande’s campaign manager, pointing out sarcastically that

"Conservative leaders [read: Merkel], who have been so quick to unite to defend the president, will appreciate his threat to pull unilaterally out of the Schengen zone at the same time that he calls for the signature of the austerity treaty in the name of European cohesion."

Electoral mud-slinging aside, is Sarkozy genuinely going for an overhaul of the Schengen Treaty and a fresh slew of trade measures to protect European firms? It's doubtful.

A mechanism to temporarily re-introduce internal border controls already exists within Schengen, bit its precise meaning is vague and limited to “a serious threat to public policy or internal security.” In addition, the European Commission has proposed a clearer, beefed up procedure, currently subject to negotiations between member states. So in theory, it's possible to 'suspend' Schengen (i.e. introduce border controls). This was a discussion that flared up last year in Denmark (which did actually re-introduce some additional controls) and in a border row between France and Italy. But in practice, this would be hugely complicated, as the mechanism only allows a country to keep the checks in place for 30 days, which must be justified on grounds of "internal security." If Sarkozy did in fact go down that road, he would have an almighty political row with EU partners on his hands, akin to De Gaulle's "empty chair" episode.

A more likely outcome - in the event that Sarkozy does get re-elected - is some minor reform, such as boosting the budget of Frontex (the EU's border agency), more money to Greece and other border states and perhaps clearer rules on member states' ability to take action (as per the Commission's proposal minus, we suspect, the strong role the Commission sees for itself), which will then allow Sarkozy to claim a political victory. As ever, EU politics is a great avenue for politicians to promise all kinds of stuff, only to let it get lost in the often tedious details of EU law/politics.

On his second 'ultimatum' to Brussels, Sarkozy has actually promised different versions of 'Buy European' rules for some time. In 2007, he floated the idea of "European champions" to be promoted over global competitors. As ever, it's unclear exactly what a "Buy European" act would involve, how it would be agreed, and how it would fit with existing WTO and EU state aid laws.

Today, EU Internal Market and Services Commissioner Michel Barnier said that the Commission was working on a proposal to introduce "non-protectionist" measures to favour European enterprises in the allocation of public sector contracts. The measures will allow member states to block non-EU businesses from bidding for public sector contracts if their country of origin does not have open public procurement markets. This is the case in China, for example. This will please Sarkozy, who called for "reciprocity" in commercial negotations between the EU and other states. British permanent representative in Brussels Aled Williams voiced fears that the new regulation could give rise to "tit-for-tat" responses from other countries, fuelling a trade war.

Sarkozy’s pledges were vague and perhaps disingenuous - this is an election campaign after all - but they are significant because they could represent part of a wider shift towards a more assertive French European policy (or perhaps a reaction to recent German leadership). Tellingly, Hollande's campaign manager accused Sarkozy of giving the impression of someone who “is not a French president…but almost a Conservative British Prime Minister.”

When Sarkozy introduced a Financial Transaction Tax earlier this year, he showed he was willing to flout EU opinion, and, in his view at least, lead the way. This time, Sarkozy has gone one step further, and, in rhetoric at least, suggested that he is willing to actually violate EU law to unilaterally impose his own border and government purchase policy. Other EU leaders have so far ignored his speech yesterday, but it will be interesting to see how they decide to react.

One this is clear, viewed from capitals around Europe, the French Presidential campaign just got a whole lot more interesting.

Open Europe has today published a new report looking at the impact of EU free movement and external immigration policies on the UK. We argue that, while free movement comes with benefits, reform is needed to avoid losing all public confidence in the concept - much of which applies beyond the UK.

Hollande takes on London

“I am not dangerous” said a grinning Francois Hollande as he arrived in London yesterday.

The Socialist frontrunner to the presidency is on a damage-control trip following a series of statements on markets and wealth creation. The self-described “Mr Normal” has sought to win over the French electorate by presenting himself as the humble antidote to flashy Nicolas Sarkozy.

Trouble is, Sarkozy is playing the same game. Two weeks ago the incumbent President proclaimed himself the “candidate of the people” and vowed to defend French interests against markets by introducing a Financial Transaction Tax.Hollande, perhaps sensing that Sarkozy is treading on his home turf, has upped his rhetoric.

On Monday night, he denounced the “indecent wealth” of French CEOs, and proposed the introduction of an eye-watering 75% tax rate on annual salaries above €1million. The announcement came in the middle of an unrelated debate on unemployment, prompting accusations of improvisation. Sarkozy claimed that the statement smacked of “amateurism”, while Budget Minister Valerie Pecresse denounced Hollande’s “fiscal inflation”, pointing out that “he invents a new tax every week, without proposing any budget savings”. Hollande has a record of market and wealth-bashing. The Correze deputy stated, twice, that he “didn’t like rich people” in 2007, and announced at his official campaign rally two months ago that his “real enemy was finance”.

On Wednesday, he sought to make amends and soothe market and City of London fears. At a meeting with Ed Miliband he pointed out that “the Left was in power for 15 years [under Mitterrand] during which we liberalised the economy and opened markets to finance and privatisation. There is nothing to fear”.

Is that true?

Well, tellingly, Hollande did not meet one City representative during his time in London.

The 75% tax rate is just the latest in a string a proposals designed to hit the richest hardest. Le Monde estimates that under Hollande’s programme, wealthy citizens would pay almost €12bn in tax. Alongside the 75% rate, which will hit between 15,000 and 20,000 households, Hollande calls for a €10,000 limit on tax relief, a hike in inheritance tax, and a 45% tax rate on incomes above €150,000. The 75% rate outstrips current EU tax levels, the highest of which is 56.5% in Sweden. Frightening French CEOs is unlikely to encourage investment, and fuels fears of an exodus of wealthy French nationals. As Nicolas Sarkozy warned this morning on French radio, “the rich will have no reason left to stay”.

Aside from the domestic political considerations, the move also raises serious questions about the viability of tax harmonisation within the eurozone, something the current French and German governments are pushing for in an effort to improve competitiveness through economic policy convergence. Although the initial proposals focus on corporation rather than personal tax, it is difficult to see how such disparate rates of top personal tax rates would not affect countries' competitiveness within the eurozone.

Hollande’s shift to the Left puts him at odds with other European leaders. Cameron and Merkel have snubbed him, while Miliband’s endorsement was lukewarm. Although Hollande stated that “we need Great Britain to take part in Europe and the adventure of construction”, and argued that “European progressives need to secure the success of the next generation”, Miliband stressed that he would not seek to increase tax rates on the highest earners, or introduce a financial transaction tax. Meanwhile, German Social Democrats have distanced themselves from the 75% tax rate. More than 500 UK business leaders called on George Osborne to cut the "damaging" top tax rate today.

European heads of government will hardly be reassured by the Socialist Party’s recent prevarication over the ratification of the EU’s permanent bailout fund, the European Stability Mechanism. The party’s refusal to endorse the fund (20 deputies voted against, many others abstained) is seen in Europe as illustrative of the Socialists’ unpredictable policy-making. Hollande’s oft-repeated pledge to renegotiate the fiscal treaty does not inspire much confidence in Brussels either. As a high-ranking Brussels official told Le Monde two days ago “nobody really knows what Hollande stands for”.

Either way, Hollande's off the cuff announcement marks another twist and turn in what is becoming a fascinating contest with significant repercussions not only for France, but Europe as a whole.

The End of the Road?

Nicolas Sarkozy officially announced his candidacy for re-election during a televised appearance broadcast on TF1 last night. The decision hardly came as a surprise. UMP officials had kept tight-lipped about the President’s schedule, but his recent foray into Twitter and lengthy interview in Le Figaro on Sunday fuelled well-founded speculation in Paris. Sarkozy had hoped to delay the announcement until March, but it is believed that party officials’ exasperation and his unpopularity in the polls forced his hand. As Francois Hollande, election frontrunner and Socialist candidate slyly commented on Tuesday morning, “it seems [that the announcement] comes earlier than expected, don’t you think? Perhaps he believed it was a matter of urgency”.

What are his chances?

According to the latest polls by IFOP-Paris Match published just before the interview last night, Francois Hollande leads with 30%, followed by Sarkozy with 25.5%. Marine Le Pen, far-right candidate for the Front National ranks third place with 17.5% of voting intentions.

Historically, French presidents up for re-election rarely experience a boost in the opinion polls following the announcement of their candidacy. Valery Giscard d’Estaing, Francois Mitterrand and Jacques Chirac each experienced slight increases in opinion polls, which were short-lived and generally failed to change the course of the election. Polling experts believe that Sarkozy would be lucky to experience a boost, since his announcement had been widely expected. As Jean-Marc Lech of polling institute Ipsos remarks “for the announcement to create an effect, it ought to surprise the electorate. But nothing [last night] was surprising, other than the exact date and the location of Sarkozy’s interview”.

Rivals for the Elysee dismissed the event. Le Pen called it a “non-event…of no political importance” and centrist candidate Francois Bayrou slammed Sarkozy’s time in office “his record speaks so much louder that anything he can say”, mocking the incumbent’s analogy of a captain refusing to abandon his ship, “when a captain has steered his ship onto rocks, it’s time for change”.

But historical precedents need not necessarily apply. In 2007 Sarkozy proved himself to be an expert campaigner, able to inject dynamism into the Elysee race, and capable of appealing to wide sections of the electorate. Recent positive figures on French growth (0.2% in the last quarter of 2011, compared to recession in the rest of the eurozone) could bolster the incumbent’s argument that he has the experience to lead an embattled France through the economic crisis.

On the whole though, this looks unlikely. Sarkozy has led an erratic unofficial campaign since January. The proposal to introduce reforms to the sclerotic French labour market last month was widely perceived as an electoral mistake. It is unpopular with the French, and is ill-timed, if necessary. Angela Merkel’s endorsement of his re-election was awkward, as it came weeks ahead of Sarkozy’s official announcement, and jars with his recent decision to appeal to Le Pen’s anti-euro, anti-German supporters. In addition, his pledge last night to “put work at the heart of everything” was too similar to his undelivered 2007 campaign promises.

It's argued that Sarkozy's real chance in re-election lies with Le Pen. If the FN candidate fails to secure the 500 mayoral nominations needed to present herself at the ballot, Sarkozy will benefit from a boost in support. Despite his pro-Euoprean stance, it is likely that far-right supporters will be wooed by promises of referendums on the rights of immigrants and the unemployed. This is something Sarkozy is aware of: tellingly, he refused to back Bayrou’s plea for a reform of the nomination system. A poll published earlier this month found that Sarkozy and Hollande would equalise in the first round if Le Pen did not run in the election. However, although this would provide Sarkozy with a boost in the first round, it wouldn't make a difference to his second round chances, where he continues to trail behind Hollande with 43% compared to the Socialist candidate's 57%. In all likelihood, Le Pen will not make it to the second round, so her inability to run on the ballot won't change Sarkozy's chances. Looks like Nicolas needs to try harder to win over the electorate.

Liaising With The Right People?

Antonis Samaras (see picture), the leader of Greece's centre-right New Democracy party, has made people in Athens, Brussels and elsewhere sweat quite a bit with his aversion to giving a written commitment to the latest austerity package.

However, he has finally bowed to pressure. Here is a link to the letter Samaras sent to the European Commission, the ECB and the IMF to reassure them that he will stick to the latest round of austerity measures adopted by the Greek parliament on Sunday if he wins the next general elections in April.

Predictably, media reports are focusing on the following part of the letter,

If New Democracy wins the next election in Greece, we will remain committed to the [Greek Stabilisation] Programme’s objectives, targets and key policies.

Given that former Greek Prime Minister George Papandreou has already sent over to Brussels a similar commitment on behalf of his Socialist PASOK party, on the surface Greece seems to have made another crucial step towards its second bailout.

However, doubts remain over the strength and the actual relevance of the commitment sought by Greece's public lenders. Firstly, as Samaras specifies in his letter,

Prioritising recovery along with the other objectives, will only make the [Greek Stabilisation] Programme more effective and the adjustment effort more successful. Therefore...policy modifications might be required to guarantee the Programme’s full implementation. And, once again, we intend to bring these issues to discussion along with viable policy alternatives.

Indeed, this is supposed to happen "strictly within the framework outlined by the Program, so that the achievement of its objectives will not be put at risk." Still, this reads like a clear hint that, at some point, Samaras may want to give a boost to Greece's public spending in the name of economic recovery.

Secondly, and most importantly, are the Commission, ECB and others really liaising with the right people in Greece? In other words, is a written commitment from only PASOK and New Democracy enough to ensure that Greece will keep doing its homework regardless of who wins the next elections? According to the latest opinion polls, the answer seems to be a 'no'.

In fact, Samaras' party is currently polling at 31% - definitely not enough to secure an absolute majority in the Greek parliament. The problem is that New Democracy's 'natural' ally in a hypothetical coalition, the far-right LAOS party, recently withdrew its support for Lucas Papademos' technocratic government precisely because it didn't want to back the latest round of austerity imposed on Greece.

Crucially, the polls show that not even a German-style (unlikely) Große Koalition between New Democracy and Papandreou's PASOK would be enough. With PASOK credited with only 8% of votes, the two parties would put together less than 40% of votes - still not an absolute majority.

In other words, Athens' public creditors seem to have lost touch with the political reality in Greece. And the reality is that, as the two 'mainstream' parties are increasingly seen as mere executors of the requests coming from the EU, Germany, France and others, the Greek electorate is moving towards the extremes of the political spectrum. As the FT's Gideon Rachman points out, three far-left parties account for 42.5% of the votes - so potentially more than New Democracy and PASOK together.

Perhaps the European Commission should try and pick up its interlocutors a bit better. Or, perhaps, people in Brussels think that Greek voters will feel 'encouraged' to vote for either New Democracy or PASOK as they are the only two parties which can make sure that Greece gets its second bailout...

Holding The Fiscal Treaty Hostage

Socialist candidate François Hollande (see picture) has begun to flesh out what his pledge to renegotiate the new European fiscal treaty on budgetary discipline would involve, if he wins the upcoming French presidential elections.

First, (and predictably, given that it is by far the most controversial point of the fiscal treaty, as we argued here and here), the leader of the French Socialists will seek to "clarify" the role of the European Court of Justice. In an interview in yesterday's Le Monde, Hollande said:

"In what framework would [the ECJ] intervene to verify the respect of budgetary discipline? What is the nature of the sanctions imposed on countries which don't respect [budgetary discipline]? These are all points that will have to be clarified."

Secondly, Hollande pledged to make the fiscal treaty less focused on austerity by introducing specific provisions aimed at boosting growth and employment in the EU. In particular, he mentioned,

"The possibility for the European Investment Bank to increase its lending capacity."

and,

"The possibility, within the framework of the EU budget, to use part of the structural funds to subsidise investment projects in weak growth countries."

Perhaps most interestingly, when reminded that twelve ratifications are needed in order for the fiscal treaty to enter into force, meaning that the agreement could potentially go ahead without France, he noted,

This treaty will be signed on 1 March, but I'm not sure that, in May [the second round of the French presidential election is scheduled for 6 May], more than one or two countries will have ratified it. Therefore, we will be able to renegotiate this treaty, signed but not yet ratified.

Hollande also said that he expected to get support from "countries such as Denmark or Italy, which are also seeking clarifications or additions [to the fiscal treaty]." However, he has no intention of putting the fiscal treaty to a referendum (bad memories from the French referendum on the EU Constitution perhaps?), because,

We won't hold a referendum on a treaty which doesn't mark a real rupture, unlike the Maastricht Treaty.

So, we might be looking at a pretty big showdown between Hollande and Angela Merkel. The German Chancellor isn't exactly helping either - saying that she is not planning to meet the French Socialist leader in the short term because "heads of state have more important things to sort out." Therefore, if Hollande - who according to opinion polls is heading for a victory - sticks to his electoral pledges once in power, France could effectively turn from a major supporter into a major obstacle for the new fiscal treaty.

As ever, the 26-versus-1 narrative is looking quite fluid...

Sarkozy: a Tobin Tax is an "absurdity"

In a debate with Francois Hollande and François Bayrou, a youthful Nicolas Sarkozy calls the Tobin Tax an “absurdity”. You heard that right. Sarkozy - who recently announced his plan to introduce a Financial Transaction Tax(FTT) by the 1st of August “with or without the others” - warns in a 1999 TV debate of the dangers of excessive financial regulation.

In particular, he argues:

“If we tax, none of the other countries will do so,” adding that “penalising wealth creation in our country will only serve to benefit wealth creation elsewhere, unemployment for us and jobs for the others”.

He’s clearly changed his mind.

Merkel takes the fight directly to Hollande

The politics of the eurozone crisis took several new twists and turns over the weekend, including the news that Angela Merkel intends to step in and “actively” support Nicolas Sarkozy’s Presidential re-election campaign (although he is yet to formally announce his candidature) against the Socialist candidate Francois Hollande. It is understood this involvement could take the form of joint campaign appearances.

Moreover, Hermann Gröhe, a senior member of Merkel’s CDU party did not mince his words when he commented on the election, claiming that:

“[Sarkozy] is the right man in the Elysée now and in the future…We need a strong France with a strong president in charge…The Socialists are stuck in their dreams of the past. All they are doing is bringing out dusty concepts and wealth distribution fantasies from their moth-ridden policy cupboard.”

In recent months, Hollande’s candidacy has become the focal point of opposition to Merkel’s crisis management strategy and the ethos that underpins it - symbolised by the treaty on closer fiscal integration and discipline. Hollande has promised to focus less on austerity and more on promoting jobs and growth, both in France and the eurozone; he has pledged, if elected, to re-negotiate the treaty so that it focuses less on 'stability' and more on 'solidarity'. Although Sarkozy signed up to the treaty at yesterday's summit, the French parliament will not have an opportunity to ratify it before the presidential elections.

The stakes are therefore high for Merkel who has a lot political capital – both domestically and internationally - riding on the successful transposition of the treaty into domestic law throughout the eurozone (even if it is debatable as to whether it will address the root causes of the crisis). Given that polls consistently give Hollande a clear lead, Merkel has decided that in order to protect the treaty in its current state, she will have to intervene. While it may be unpopular with her own MPs who consider it to have been watered down too much, she knows this is nothing compared to how it would be affected by a likely Hollande victory.

The big question is whether Merkel's endorsement will be to Sarkozy's benefit or detriment; it certainly jars with his recent media strategy of playing the humble do-gooder trying to make the best out of a bad situation. It is likewise no secret that due to Merkel's (perceived) lack of willingness to compromise on issues such as eurobonds or the ECB, both she and Germany as a whole have become the pantomime villains of the crisis. There is also potentially the risk of a backlash against Sarkozy if the French public feels that Merkel has crossed the line and is actively trying to meddle in their domestic political arrangements.

Ultimately however, both Merkel and Sarkozy will hope that as suggested in the FT’s editorial this weekend, the French public will vote with their hearts in the first round, and with their heads in the second. While they cannot win in the popularity stakes, they will count on the fact that the public will at least recognise that they have taken tough but necessary action to tackle the eurozone crisis, and that for all his rhetoric, Hollande lacks a credible plan for making the French economy competitive. There are some grounds for optimism - a poll earlier this month found that 82% of respondents had a positive view of Germany, in particular regarding its leadership and work ethic. Finally, it is worth remembering Merkel is not renowned as an astute political operator for nothing; evidently she has decided Sarkozy's re-election is not a lost cause.

Merkel's intervention should add further spice to what is shaping up to be a fascinating election campaign - as ever we will keep you updated on the ins and outs...