The CAC-40 index of France sank almost 3 percent in trading, while the euro currency fell against both the U.S. dollar and Japanese yen.
Clearly, the likelihood of Hollande becoming France’s next President -- the first Socialist to occupy the Élysée Palace since Francis Mitterrand in 1995 – does not bode well for euro zone governments seeking to cut spending and slash jobs in order to reduce deficits.
As expected, Hollande won the first round of the poll with 28.6 percent of the vote, while incumbent Nicolas Sarkozy placed second at 27.1 percent. In a stunning surprise, the leader of the far-right National Front Party, Marine Le Pen gained almost 18 percent, or about 6.3 million voters – the biggest showing ever for her anti-immigrant party.
Hollande is expected to gain many of the voters who supported the losing far-left candidate Jean-Luc Melenchon, came in fourth with 11.1 percent of the first-round poll. After the results came in o Sunday, Melenchon urged his supporters to throw their weight behind Hollande in the second round, as did Eva Joly, the Green Party candidate.
Hollande is predicted to win the second round of voting against Sarkozy, which will take place on May 6.
With conservatives running Britain, Spain and Germany, a Socialist-ruled France may hamper efforts by the euro zone to tackle the debt crisis. Hollande has called for raising taxes on the rich and for the removal or easing of austerity measures and to focus more on economic growth, while Sarkozy champions strict spending cuts to bring down the deficit.
The fragile French economy, which has an unemployment rate of 12 percent, was clearly the dominant issue among voters; although Le Pen’s impressive finish suggests immigration was also a key concern.
James Goundry, a London-based analyst at IHS Global Insight, said both Hollande and Sarkozy will seek to attract disaffected or undecided voters, but that may not be easy.
“Le Pen is unlikely to endorse either candidate,” he said. “Having framed her campaign as that of the anti-establishment outsider, and being fiercely critical of Sarkozy and Hollande, she is unlikely to compromise and risk accusations of hypocrisy from her supporters. Instead, Le Pen is likely to attempt to build on the result in the upcoming legislative election, and consolidate the National Front as a major force in French politics.”
With Hollande guaranteed to have almost all of the leftist vote, and perhaps some of the centrist vote from losing candidate Francois Bayrou, Sarkozy may find it far harder to siphon Le Pen’s extremist support.
“Le Pen supporters will not automatically migrate to Sarkozy on the centre-right,” Goundry noted.
“Although ideologically closer to Sarkozy than Hollande, particularly on security and immigration issues, many Le Pen supporters will choose to abstain, and some will be attracted to Hollande's desire for greater emphasis on growth measures as well as austerity.”
Julian Jessop, an analyst at Capitol Economics in London, commented that despite all the fiery rhetoric between the two camps, Hollande and Sarkozy have pretty similar economic programs.
“As it happens the differences in their plans are relatively minor, with both relying on over-optimistic growth forecasts to cut borrowing and neither tackling the key issues holding back French growth,” he said.
“But the last thing that the markets need right now is increased political uncertainty at the heart of Europe at a time when the economic outlook is already bleak.”
Goundry also noted that Sarkozy is likely being punished for France’s weak economy, in addition to his personal unpopularity and the perception that he favors the wealthy.