France's Presidential Frontrunner Gives Markets the Jitters

The eurozone's sovereign debt crisis has helped topple half a dozen European leaders. It looks like French President Nicolas Sarkozy may be next. Polls show Sarkozy's Socialist rival, Francois Hollande, winning France's May 6 runoff election. But the prospect of an Hollande presidency is making markets - and analysts - nervous.

It's been nearly 20 years since France had a Socialist president. That may change in just over a week. French polls all predict Socialist contender Francois Hollande will beat conservative President Nicolas Sarkozy in the second round of presidential elections on May 6.

In press conferences and interviews - like one on French radio Friday - Hollande outlines an economic strategy that includes more taxes for the rich and more spending to stimulate growth.

But Hollande says his first action would target the wider eurozone crisis that is now in its third year. Hollande says he will renegotiate a European Union fiscal treaty agreed to last year in order to promote economic growth.

The Socialist candidate is getting applause from his supporters - but not from markets, which briefly dipped after he won the first round of French elections last Sunday. Analysts like economics professor Tomasz Michalski, of the HEC business school in Paris, also see little reason to cheer.

"First of all, Hollande is going to increase very drastically taxes in France. In the short run the increase in taxes is going to lower the budget deficit," he said. "But in the long run it's not a good growth strategy…this is going to keep talent away. And France desperately needs new businesses, desperately needs entrepreneurs to keep the economy going."

Other experts agree. Britain's leading The Economist magazine is even more critical, calling Hollande's economic prescriptions "dangerous."

Analyst Philip Whyte, of the London-based Center for European Reform, says he understands why markets are jittery about an Hollande presidency.

"But of course, once he's in office, he will very quickly be confronted by some of the constraints of office and some of those constraints might be imposed by the bond markets," he said."

Hollande's growth prescription for Europe even got some support this week by European Central Bank Chief Mario Draghi, who called on governments to invest in jobs and growth along with spending cuts.

Jobs and economic growth are top concerns of French voters like 54-year-old Fatna Chouaikh. Chouaikh believes Hollande can turn things around. She says Hollande is competent, hard-working and has what it takes to bring France out of its economic doldrums.

Under current President Sarkozy, the economy shrank and unemployment soared to nearly 10 percent.

Most analysts agree that Sarkozy is not to blame for a global crisis that has sent many other economies tumbling as well. Whyte, of the Center for European Reform, credits Sarkozy for pushing through a few key reforms - like raising the retirement age - and for his initial leadership in the eurozone crisis.

But Whyte faults the French president for letting German Chancellor Angela Merkel dictate eurozone policies today. And overall, he gives Sarkozy's performance a mediocre review.

"The problem with Sarkozy is that he really doesn't have an economic vision," Whyte said. "He's a man of action. But he has no real coherence to much of what he does. If you look at his performance over five years as president, there's not been a terribly clear economic path he's forged."

Professor Michalski offers similar criticism.

"The measures that Sarkozy is proposing in this campaign do not form a coherent long-term program," he said. "Rather, they're small measures addressed to particular issues. So I'm very skeptical."

Ultimately, smaller parties may shape the economic policies of either an Hollande or a Sarkozy presidency. Hollande is counting on far-left and centrist voters to win the May 6 runoff. Sarkozy is courting those who voted for the far-right in the first round - and who are skeptical of the European Union and of taking economic orders from Brussels.