François Hollande, the Socialist Party candidate for this year's French presidential election, which will be held on Sunday. Yoan Valat / EPA
François Hollande, the Socialist Party candidate for this year's French presidential election, which will be held on Sunday. Yoan Valat / EPA

How will Hollande handle France?



Day after day, as the French presidential election entered its formal stage with regulated airtime and repetitive broadcasts of the candidates' self-serving clips, viewers heard the mantra of the socialist favourite, François Hollande: "Money will be put in its place. As a servant, not the master."

But what happens the day after Mr Hollande, a seasoned party administrator with no experience of government office, becomes head of state - as the opinion polls relentlessly say he will - could be another matter.

How does he ensure it is not a Black Monday, on which money shows its more masterly side and, in the markets' harsh judgement, delivers a resounding thumbs down to his tax-and-spend programme?

It has happened before. Stocks slumped by 20 per cent and the value of France's pre-euro currency, the franc, fell sharply after another François of the French left, Mitterrand, became president in 1981. Trading was briefly suspended.

Thirty-one years on, there are differences as Sunday's first round of the 2012 election approaches.

Mr Mitterrand had to be prodded by bitter experience into moderating his socialist manifesto. Mr Hollande has learnt in advance from recent political history, notably the early successes of Tony Blair's New Labour project in Britain, of the need to convince voters that he is a responsible man to be trusted with the nation's finances.

Even so, the rhetoric is combative, and some of the means promised by Mr Hollande as a route to his chosen end cause deep concern to conservative analysts. Throughout Europe, years of self-indulgence have led to austerity programmes and, in particular, lower spending ambitions. Mr Hollande promises pretty much the opposite.

It would take a generous view of current market stability to suggest that 1981 was a more perilous time than today to be embarking on a programme of artificially fuelled growth.

Mr Mitterrand's own learning curve inspired a major about-turn, with wages frozen and concessions made to employers, early in a presidency with a communist participation that had the militant left salivating. As his policies mellowed, he found the markets more receptive, to the extent that they responded favourably when he won a second mandate.

But in troubled times for the euro, and indeed for a French economy that lost its coveted triple-A credit rating in January, Mr Hollande's recipe for recovery is unpalatable for many decision-makers.

A key campaign pledge is to renegotiate the strict financial package that Mr Hollande's presidential rival, Nicolas Sarkozy, laboured so hard with Angela Merkel, the German chancellor, to produce and which, together, they commended to euro-zone partners as essential if the beleaguered single currency was to be saved.

But his dim view of the Merkel-Sarkozy treaty translates into France rejecting the "golden rule" requiring each country to limit its deficit to a maximum of 3 per cent of GDP or incur automatic sanctions - even though Mr Hollande claims he can reach that target next year and eliminate the budget deficit by 2017.

He stresses the importance of continued Franco-German collaboration, but Mrs Merkel is alarmed by his threat to a unified quest for euro-zone financial discipline.

Unrepentant, and mindful of his party's ambition to follow presidential triumph by taking control of parliament in June, Mr Hollande told the German economic newspaper Handelsblatt bluntly: "If the treaty contains no measures for growth, I could not support its ratification by the National Assembly … I have met several European heads of state and many are not satisfied with the economic situation. I am not isolated."

Beyond his quarrels with his rival's euro policies, Mr Hollande has plans to create 150,000 jobs for young people in poor areas and 60,000 teaching posts during his five-year term of office. And then, of course, there is the eye-catching, bash-the-rich tax of 75 per cent on annual incomes over €1 million (Dh4.8m).

In French football's top-tier Ligue 1, Paris Saint-Germain's manager, Carlo Ancelotti, and his €42m Argentinian midfielder Javier Pastore earn more in a month, and it is debatable how many would care to follow Pastore's lead and declare: "If I have to pay it, I will."

It is bad enough in many French eyes that top footballers will be driven away to other leagues. It would be worse still if a tax designed to make the best-off take their share of the pain not only produced relatively little revenue but deterred investment and therefore job creation.

The French centre-right talks up Mr Sarkozy as a more prudent manager of money. And right-wing commentators argue that Mr Hollande's credibility, as viewed by middle France, has been severely damaged by the shrillness of his attacks on the financial sector.

"To the moderate mass of French, Hollande started to look like just another old socialist of the sort most of the rest of Europe had done [away] with shortly after the fall of the Berlin Wall," Simon Heffer wrote in The Connexion, a monthly newspaper for English-speakers in France.

But Mr Heffer was unable to offer much hope that this "moderate mass" carried sufficient electoral clout to keep Mr Hollande out of the Elysée. Indeed, the polls would have to be spectacularly wrong, or Mr Sarkozy capable of making an extraordinary comeback, to stop a Socialist victory on May 6, when the two men are expected to slug it out in a second-round decider.

Once in power, assuming he does win, Mr Hollande will have his work cut out keeping at bay Jean-Luc Mélenchon, whose far-left programme - including even greater tax hikes for the rich, to 100 per cent at €360,000 a year, and an increase in the minimum wage from €1,398 to €1,700 a month - makes Mr Hollande seem restrained. And Mr Mélenchon may pick up enough votes on Sunday to embolden him in his declared aim of proving a constant irritant to the more moderate left winger who takes office.

Yet amid lingering public anger towards the bankers and speculators whose greed or incompetence is at least partly blamed for economic crisis, Mr Hollande's approach ticks the right boxes for many voters. His prospects of finishing Sunday's first round ahead of Mr Sarkozy have strengthened if the most recent polls accurately reflect public opinion; the gap in second-round voting intentions, already significant, now suggests a landslide.

By no means all observers expect financial turmoil. "My own guess is that once he is in office, the markets will be fine," said Nick Hewlett, a professor of French studies at Warwick University in the United Kingdom and the author of an acclaimed book, The Sarkozy Phenomenon.

"There may be a bit of a wobble, but it won't be Mitterrand and 1981 all over again," he added. "There has been talk of companies relocating, but I see no convincing evidence. France remains the world's fifth-strongest economy on most measures, and while business leaders tend to see Sarkozy as a good thing, I don't think Hollande's programme is one that really frightens them."

Jacques Reland, the left-of-centre French head of research at the Global Policy Institute in Paris, agrees.

"The very high tax rate would affect very limited numbers who'd probably find ways round it," he said. "It is more of a political measure than anything. It may be bad for football, but not really for the economy. And I honestly believe the Germans are quietly impressed that Hollande is a steady character, a man of his word, not constantly changing like Sarkozy."

For Mr Sarkozy's supporters, the socialist candidate's policies make economic nonsense and threaten European stability. "Day after day he says he will not respect France's commitments," said François Fillon, the prime minister. "This is a real menace to the single currency, which remains in extreme danger."

Mr Fillon's concerns, it may safely be assumed, were also in the thoughts of owners of 50 or so of France's greatest fortunes who assembled for lunch at the plush Hôtel de Crillon on the Place de la Concorde just before Mr Sarkozy addressed a huge election rally five days ago.

The satirical newspaper Le Canard enchainé reported on the event with customary mischief but stopped short of speculating on how many of these powerful citizens voiced fears that France's economy could be about to suffer a fate equivalent to that of Marie Antoinette when she climbed the scaffold, just across the square, for her date with the guillotine in October 1793.

Skewed figures

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

At a glance

Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.

 

Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year

 

Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month

 

Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30 

 

Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse

 

Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth

 

Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances