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French President Nicolas Sarkozy waves to supporters as he strolls along the seafront after his last campaign meeting in Les Sables-d'Olonne, western France on Friday, May 4, two days ahead of the second round of the French presidential elections. (Eric Feferberg/Eric Feferberg/AP)
French President Nicolas Sarkozy waves to supporters as he strolls along the seafront after his last campaign meeting in Les Sables-d'Olonne, western France on Friday, May 4, two days ahead of the second round of the French presidential elections. (Eric Feferberg/Eric Feferberg/AP)

As the euro zone turns: More elections, more uncertainty Add to ...

The great recycling of European politicians begins afresh on Sunday, when French and Greek voters go to the polls. Since the start of the financial and debt crises, 10 European governments have either fallen or been replaced. The latest victim was the Dutch government of prime minister Mark Rutte, obliterated in April by a political deadlock over budget and austerity measures.

It appears that French President Nicolas Sarkozy will be next to be tossed like a broken bottle onto the leaders’ scrap heap. His opponent, Socialist Leader François Hollande, has a slim lead in the polls. In Greece, now run by a technical government, some sort of messy – and perhaps unworkable – coalition is expected to emerge.

The question is whether the ouster of the conservative Mr. Sarkozy, the chief economic ally and lap dog of German Chancellor Angela Merkel, would make the euro zone crisis worse (if that is imaginable as the region plunges back into recession) or better. The same question can be asked of Greece and whether the new parliament, perhaps one stuffed with anti-austerity parties, will accelerate Greece’s manic gallop to the euro zone’s cliff edge.

Based on a lot of the political and economic punditry, and Mr. Sarkozy’s damning accusations against his opponent, Mr. Hollande represents a grave threat to the health of France and, therefore, the euro zone itself. The cover line of the last edition of The Economist called him “The rather dangerous Monsieur Hollande.”

Mr. Hollande has been painted as a classic tax-and-spend socialist, one who would roll back the retirement age that had been raised by Mr. Sarkozy, hire thousands of new teachers, thus padding the already bloated government payroll, lighten up on austerity measures, whack the rich with a supertax and renegotiate the European fiscal discipline compact championed by Ms. Merkel.

But Mr. Hollande’s alleged threat to the economy is greatly overblown, and Mr. Sarkozy has a lot of nerve to accuse him of being the economy’s would-be assassin. Under Mr. Sarkozy, France has been a story of economic deterioration. The country lost its triple-A credit rating. The jobless rate has steadily climbed; at 10 per cent, it is worse than Italy’s. A fat budget deficit – expected to be 5.2 per cent of gross domestic product this year – is above the euro zone’s average.

Worse, Mr. Sarkozy has pretty much been a dud on economic reform. Public expenditures have barely been touched and high labour costs and labour inflexibility remain intact. France is in danger of becoming an uncompetitive economy. Small wonder that it is on the verge of recession.

Mr. Hollande is unlikely to make it worse. His economic platform is hardly lax and, in some ways, opens up the possibility that the euro zone will escape the endless growth-killing austerity measures. Contrary to some of the conservative propaganda, he is committed to busting the budget deficit. His plan would merely balance the French budget in 2016, one year later than forecast under the Sarkozy regime.

As for the fiscal compact, which sets strict limits on budget deficits and national debt loads among the signatories (most of the European Union, with Britain the notable exception), he just wants it complemented with growth strategies. Guess what? European Central Bank boss Mario Draghi agrees. This week, he called for a “growth compact.” Ms. Merkel, the queen of fiscal rectitude, supported his call.

If elected, Mr. Hollande is hardly likely to shred these promises and take rectitude off the table in a deranged effort to preserve the French socialist state at any cost. He is smart enough to know that France would get slaughtered by bond investors. Nor would he want to launch a war of economic principles with Ms. Merkel, the leader of Europe’s most powerful economy. He surely knows that Germany, the prime sponsor of the bailouts of Greece, Ireland and Portugal, could cut the euro zone adrift if the Chancellor gets into a foul mood.

Greece is an entirely different story. The latest polls suggest that Pasok and New Democracy, the main centre left and centre right parties, just might snag as much as 35 per cent of the vote, allowing them to forge a two-party coalition that could keep the austerity and economic reform parties intact. But that’s just a wild guess at this stage, partly because voter polling is not allowed in the last two weeks of campaigns. A lot could have changed in recent days and there is no doubt that the deep recession has been a godsend to the far right and far left parties.

Take the far right Golden Dawn party, which, at last count, was polling as high as 6 per cent. It wants Greece out of the euro zone. The communist KKE party, polling at about 10 per cent, also wants Greece to take a walk. The left-wing Syriza party, which is even more popular than KKE, wants Greece to default within the euro zone and opposes the harsh austerity programs demanded by the EU and International Monetary Fund.

A Pasok-New Democracy coalition might be forced to bring one of the small, radical parties into the fold. The new beast might be unworkable. A Credit Suisse report (picked up by the Financial Times’s Alphaville column) noted that a coalition littered with small parties “might not be flexible enough to implement the agreed reforms and a lot of the measures might have to be watered down, in order to be passed in parliament.”

Greece’s exodus from the euro zone was moving ever closer in spite of the two bailouts. Sunday’s election results very likely will add to that momentum.

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