What Francois Hollande Will Do For European Financial Sector?

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In reaction to newly elected French president Francois Hollande, observers around the world are now assessing the impact that his victory will have on the European financial sector.

It is no secret that Hollande supports growth and investment measures in economic recovery rather than austerity.   In fact, experts agree that his approach is very modest compared to most euro zone nations that have placed significant emphasis on austerity.

Having inherited a near crippled economy, a high debt load, and the highest unemployment rate in 12 years, Hollande is on a mission to give Europe a growth dimension.   However, this will not be free of implications.   So, how exactly will his victory impact the European financial sector?

Firstly, given Hollande’s arresting piece of campaign rhetoric “The adversary is unregulated finance,” most likely more regulation on financial sector will follow.

Secondly, the fact that Hollande is a socialist as oppose to Nicolas Sarkozy, it’s almost safe to say that more money will be re-routed from the public into social security.   This being said, Hollande is proposing a 15% tax increase against banks.   In turn, it will result in less profit for French banks.   In fact, it is speculated that earnings could drop with 10% in 2013.

In addition, he plans to force banks to separate their retail activities from their investment business and put an end to “toxic products which profit speculators and threaten the real economy”.   To add to his agenda, Hollande plans to forbid stock options except for start up and create a European credit rating agency.

Furthermore, and yet another socialist view is the proposal of a 75% tax rate increase for individuals earning in excess of $1.3 million a year.

Hollande will also be promoting ECB money printing.   Instead of austerity, he plans to grow primarily through monetary easing, devaluation of the Euro, higher taxation, and government stimuli.   His idea to purchase government debt and increase deficit spending is said to be very similar to the formula used by Europe 10 years ago.

In fact, some experts compare Hollande’s platform to that of former French president, Francois Mitterrand.   If his approach to excessive government spending and banking regulation is in fact true, the Euro will without a doubt take strain, just like it did 30 years ago under control of Mitterrand.   This said, the European financial sector will have more than enough reason to worry.

Anna Timone (195 Posts)


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