In the intensely connected global economy, the political or fiscal occurrences in one nation have profound implications on many others. Perhaps nowhere is this clearer than the debt crisis in the European Union combined with this year's French presidential election. The winner of this race will have great influence over the recovery process in Europe, which will in turn affect the political and economic future of the United States.
Last Sunday, French citizens held the first round of voting to select the president of the Republic. Voters chose from an array of ideologues, which included Jean-Luc Mélenchon of the communist Left Front party and the right wing National Front leader Marine Le Pen. The two top candidates were incumbent Nicolas Sarkozy of the center-right Union for a Popular Movement and Socialist Francois Hollande, who finished ahead of Sarkozy in the first round. Since neither of these politicians received a majority, which is necessary to win the race overall, the two will move on to the final election taking place on May 6. The nationalist Le Pen received third place and a substantial 18% of votes with her anti-immigration and “French First” diatribes and policies. While Sarkozy is hoping that these voters will flock to him in the upcoming race, this may not be in the cards. Many of those picking Le Pen did so for anti-establishment motives, and will be unlikely to vote for the incumbent, himself the son of immigrants.
After winning the most votes in the initial race, Hollande clearly has popular approval. Sarkozy is also the first incumbent ever to not be the top vote-getter in the first count, and is seen by many in France as disconnected from their grievances. Add in the fact that Hollande will gain the Communist and Green Party votes, while Sarkozy is hardly guaranteed those on the right, and the Socialist’s victory looks certain.
One topic on all minds as the election approaches is European Union’s economic crisis, perhaps the worst it has experienced since the EU came together. To sum up the disaster: Government debt has gotten so high in certain nations (most notably Portugal, Italy, Greece and Spain) that they now require rescue packages from willing nations (France and especially Germany). When the sovereign debt crisis first struck, France attempted to forestall its effects on national employment by passing a €26 billion stimulus plan which focused on improving infrastructure.
This scheme did not appear to work, however, as unemployment hovers around 10%. Even worse, it seems, the investment package has increased public spending, and has fueled many of the problems still facing France and the rest of the EU. As a percent of GDP, annual government expenditures have now reached an alarming 56%, over 10% higher than the United States.
In this environment, one would expect Hollande, or at least the conservative Sarkozy, to argue for reduced government expenditures. No such luck. Both candidates have accepted that high spending is France’s raison d'être. While their situation begins to mirror other nations undergoing necessary austerity measures, the French presidential hopefuls didn’t seem to get the memo.
This does not bode well for the international economic system and especially not for Europe. Germany’s premier, Angela Merkel, has long depended on Sarkozy to aid in her campaign for continent-wide austerity. Hollande, an opponent of spending cuts, is unlikely to continue this partnership, which those in Europe have dubbed “Merkozy.” Even if Sarkozy does win, though, it is unlikely he will gain enough public approval for reduced government expenses. All of this spells continued economic troubles for France, the rest of the EU and thus the world.
The unfortunate aspect, for the United States at least, are the serious implications this election has for the United States. If the debt crisis worsens, as appears likely, expect demand in Europe to plummet. The EU is America’s largest trading partner, and this reduced market will impair numerous factories across the States, hitting transportation and chemicals industries particularly hard. The troubles will also play havoc on our financial industry, since America’s “big banks are tethered at the hips to their banks,” according to the chief economist of Moody’s Analytics.
The political outcome of all this, though, is the effect it will have on our own election. If America’s economy worsens due to the Eurozone crisis, it will greatly improve the chances of a Romney victory. Obama had the ability to use the poorly managed recession to win in 2008, and his opponent will likely do the same in 2012. This is a large reason why the Federal Reserve has used American funds to bailout European banks, in order to ease concerns of an economic collapse.
Globalization has created new winners and losers in the world economy. For nations like France, it is hard to accept this and for leaders to advocate tough, but necessary, policies. Another aspect of a global market, however, is that the French will not be the sole victims of this denial. While the political fight in France may at first seem irrelevant to Americans, the outcome of this election will have a serious impact on the US economy. It may even decide our own president in 2012.