UPDATE 2-Short party for Hollande after French election win

Mon May 7, 2012 5:30am EDT

Related Topics

* Socialist victory comes at crucial time for Europe

* Hollande wins 51.7 pct to 48.3 pct victory over Sarkozy

* Hollande urges growth measures to temper austerity

* Greek election bombshell overshadows French celebration

By Catherine Bremer and Alexandria Sage

PARIS, May 7 (Reuters) - Francois Hollande's honeymoon after his election as France's first centre-left president in 17 years was cut short on Monday by jittery financial markets eager for signals on his policies and how hard he will push back against German-led austerity.

The Socialist beat conservative Nicolas Sarkozy with 51.7 percent of Sunday's runoff vote after a bruising campaign dominated by the same anger over economic crisis that has felled 10 other European leaders since late 2009.

After jubilant left-wingers partied in the streets into the early hours in Paris, financial markets stuttered as the victory of anti-austerity parties in Greece, more than Hollande's election, fuelled fears about a new chapter in Europe's crisis.

Hollande, who delivered a victory speech in his rural base of Tulle in central France on Sunday before flying to Paris to address tens of thousands of supporters in historic Bastille square, admitted the festivities would have to be short-lived.

"There is a lot of joy and pride but also apprehension at taking on this responsibility at a difficult time for the country and for Europe," he said.

"In every capital, beyond the heads of state and government, there are people who have found hope thanks to us, who are looking to us and want to put an end to austerity."

But, his chief economic adviser said, the new team was not coming in to power to "hand out money".

The new president is expected to be sworn in on May 15. Hollande will travel to Berlin shortly thereafter to challenge Germany's focus on austerity policies and press new ideas for stimulating growth as fears about the euro zone's debt crisis resurface following an inconclusive election in Greece.

The French woke up to Hollande, arms outstretched, beaming on the front pages of morning newspapers. Left-leaning daily Liberation ran the headline "Normal!" a reference to the new president's image as a man of the people.

Arriving at his campaign headquarters in Paris on Monday morning, where he was due to hold discussions on forming a new government, Hollande emphasised that for the next few days at least conservative Nicolas Sarkozy remained in office.

"I must prepare myself. I said that I was ready and now I must make sure I am, completely," he told reporters.

With anti-austerity parties winning more than half the votes in Greece, the euro tumbled to a three-month low against the dollar; oil and European shares slumped to 4-1/2 month lows.

The Paris CAC stocks index slipped 1.5 percent but the risk premium that investors charge for holding French 10-year bonds rather than safe-haven German Bunds was broadly unchanged at 127 basis points. It hit a high of 191 bps last November amid fears of a euro zone credit crunch.

"If (Hollande) really refuses the budget-balancing rule, if he refuses to balance the books in 2016, there will be pressure from investors who currently trust us," outgoing conservative Finance Minister Francois Baroin said. Hollande has said he would balance the budget by the end of his five-year term.

BASTILLE

The left reclaimed Bastille square where revellers had danced the night away in 1981 when Francois Mitterrand became the Socialist Party's first directly elected president. Three decades later, a new generation of left-wing voters waved red flags. Some carried roses, the party emblem.

Hollande is expected to include some trusted old hands in his government like Mitterrand's prime minister Laurent Fabius but add many younger faces, notably women.

His economic team, led by centre-left former finance minister Michel Sapin, includes politicians, industry leaders and public officials seen as market-friendly.

"The words 'grace period' do not apply to the situation. That's the reality," Sapin said, adding that the priority would be to launch discussions with France's European partners.

"Nobody expects that we simply arrive in power and hand out money. That doesn't correspond to the reality of the situation."

Economists say Hollande must quickly outline his domestic plans, likely to centre on a major tax reform, and revise over-optimistic growth targets which threaten deficit-cutting goals.

His plans to tweak a reform that raised the retirement age to 62 and increase the minimum wage are unsettling investors who fear France could drift away from the club of trusted northern European borrowers and towards the debt-laden periphery.

Standard & Poor's, which stripped France of its triple-A rating in January, said Hollande's victory had no immediate impact on its creditworthiness, though it would scrutinise his policy choices. There was at least a one in three chance of a cut to France's long-term rating within two years, it said.

"Hollande's victory has already been priced in by markets, however his promises made during the campaign have not been priced in, so there is risk on the downside if he stands his ground when he announces a first set of measures," said fund manager Christian Jimenez at Diamant Bleu Gestion in Paris.

"There's a clear need to boost economic growth across Europe, but the debate is on how to achieve that without spooking investors."

PARLIAMENT

Sarkozy, punished for his failure to rein in 10-percent unemployment and for his brash personal style, conceded defeat within 20 minutes of polls closing on Sunday, telling supporters he had wished Hollande good luck in such trying times.

"I bear the full responsibility for this defeat," Sarkozy said, indicating he would withdraw from frontline politics.

In Greece, mainstream parties were hammered in a parliamentary election that left supporters of an IMF/EU bailout without a majority, raising doubts about Athens' future in the euro zone.

Hollande's clear win should give the self-styled "Mr Normal" the momentum to press German Chancellor Angela Merkel to accept a policy shift towards fostering growth in Europe to balance the austerity that has fuelled anger across southern Europe.

Merkel, who had openly favoured fellow conservative Sarkozy, telephoned to congratulate Hollande and invited him to Berlin after his inauguration. The vote ended the "Merkozy" duo that led Europe through crisis and ushers in an untested partnership.

German Foreign Minister Guido Westerwelle said: "We will now work together on a growth pact for Europe, that delivers more growth through more competitiveness."

Sweden's centre-right finance minister, Anders Borg, said he was confident Hollande would not bust budgets: "We have got a pragmatic government in France that will uphold a pro-European policy with a stable focus in terms of fiscal policy," he said.

Opinion polls taken on Sunday showed the left strongly placed to win a majority in parliamentary elections next month, especially since the anti-immigration National Front is set to split the right-wing vote and hurt Sarkozy's UMP party.

If they win that two-round election on June 10 and 17, the Socialists would hold more levers of power than ever before, with the presidency, both houses of parliament, nearly all regions, and two-thirds of French towns in their hands.

Hollande led the presidential race from start to finish, outlining a comprehensive programme in January based on raising taxes, especially on high earners, to finance spending priorities and rein in the public deficit to zero by 2017.

He benefited from public distaste for the incumbent's abrasive style as well as anger about economic gloom that has swept aside leaders from Dublin to Lisbon.

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