Thu, May 10, 2012
World > Europe > 2012 French Election

News Analysis: Hollande victory in France could be positive news for Italian economy

2012-05-10 16:47:28 GMT2012-05-11 00:47:28(Beijing Time)  Xinhua English

By Eric J. Lyman

ROME, May 10 (Xinhua) -- The victory of socialist Francois Hollande in France's presidential runoff could prove to be a positive news for those working for an economic recovery in Italy, a leading political figure said, though analysts said the main onus for reform would still be internal.

Hollande won the election over incumbent Nicolas Sarkozy, the first time a sitting president in France failed to win re-election since 1981.

Both Hollande and Sarkozy, whose wife is of Italian origin, enjoyed support in Italy. But some in Italy are saying that Hollande's victory could be a good news for Italy's reform process.

"No country in Europe can believe that they can save themselves by themselves," said Pierluigi Bersani, secretary of Italy's center-left Democratic Party and a figure commonly mentioned as a possible successor to current Italian technocratic Prime Minister Mario Monti, who has said he will step down before elections next year.

Bersani was speaking about the view from Sarkozy's France and Angela Merkel in Germany that domestic austerity measures, backed by loan guarantees from the European Union, were the best way to confront the European debt crisis.

"The idea (of unilateral anti-crisis measures) will gradually seem absurd in Germany as well, and the idea of a collective Europe will gain ground, one in which common instruments for tackling the crisis are used," Bersani said in an interview published in Corriere della Sera.

Though the Monti government has been mostly mum on the election results in France, the developments Bersani predicted are in line with what many analysts said Italy needs.

"The government is taking all the steps it can take, including increasing taxes, facing down tax evasion, and reducing spending," said economist Antonio Scarpatti, with ABS securities in Milan. "What would really help would be a broad and steady and even recovery in demand across Europe, and maybe the Hollande victory will help foster that."

If that is the case, it comes despite likely bad news for reformers in Italy: on Sunday and Monday Italian voters went to the polls to vote for municipal government officials in nearly 1,000 cities across Italy.

Pro-reform candidates generally fared badly in those votes. That sparked speculation among analysts that the reform process could slow going forward.

"If the reformists in Italy lose influence, then it's more important than ever what happens in Europe," Scarpatti said.

Hollande has yet to pick his cabinet, but based on speculation that he will select pro-market figures.

French bond yields fell to seven-month lows in the wake of the vote there, meaning investors are less worried about the country's economic prospects after the vote than they were before.

In Italy, yields rose a little in the wake of the local election results but have since declined in step with French yields as worries seem to be stabilized. As of mid-day trading Thursday, the yield on the benchmark 10-year bond was at 5.55 percent, far from the red-line of seven percent level.

"Immediate fears of default (by Italy) have subsided significantly despite the anti-reform vote from the municipal elections," said Javier Noriega, an analysit with investment bankers Hildebrandt and Ferrar.

But analysts also said that the main impetus for any Italian recovery will still be internal.

"The steps have been laid out and now they just need to be followed,"said Scarpatti. "But some strong signals from Europe and a little luck wouldn't hurt, either."

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