| PARIS, April 23
PARIS, April 23 A weak showing for conservative
President Nicolas Sarkozy in the first round of French elections
further spooked investors already on edge about European
governments' ability to manage their debt, pressuring French
bonds and stocks on Monday.
Socialist favourite Francois Hollande came out on top with
28.6 percent, making Sarkozy, on 27.2 percent, the first sitting
president to find himself behind after the first round.
Marine Le Pen channelled French anger at high unemployment
and weak economic growth to take third place with a stronger
than expected 17.9 percent, the highest any far right candidate
has ever tallied.
French five-year credit default swaps rose 8 basis points to
207, in line with similar moves for other euro zone sovereigns,
while the spread between French and German bond yields widened,
and the CAC40 stock index slid, although still outperforming
eurozone "peripheral" nations Spain and Italy.
Le Pen's success raised fears about increasing regional
support for anti-euro populist politicians who could further
damage a fragile consensus on how to manage the debt crisis in
the months ahead.
The Dutch government is teetering on the verge of collapse
after a right-wing anti-EU party there refused to back big
budget cuts, pushing the Netherlands' AEX stock index
down 2.5 percent by 1057 GMT.
"What's news is the far right, not just in France but in the
Netherlands. This is more worrying," said Dan Sayag, a fund
manager at Amilton Asset Management in Paris.
French support for the euro has been relatively solid so
far, with eight out of 10 French favouring their country's
continued presence in the single currency, according to a
February poll by Le Figaro newspaper.
The election, along with the Dutch political crisis, further
rattled investors already nervous that Spain's shaky finances
could drag the euro zone back into crisis.
The spread between French and German 10-year
sovereign bonds widened to 154 basis points, up 9
bps on the day, as safe-haven German debt outperformed across
"It's beginning to look like the perfect storm," said
Stewart Richardson, chief investment officer at RMG.
"It looks like the French vote was more against Sarkozy than
we would have thought last week, and so there is a leftward
lurch in France," he said, adding that Hollande's policies would
be "a pretty bad step for Europe as a whole".
The CAC40 was down 2.2 percent at 1057 GMT, and the response
might have been more marked, had many investors not already
priced in a Socialist victory in France in recent months and cut
their exposure to French equities, said Yohan Salleron, a fund
manager with Mandarine Gestion in Paris, adding that his firm
had done the same.
"When you look at the companies in which the French state
has a significant role, like EDF, GDF Suez and
France Telecom, our impression is that the market has
penalised them from the beginning of the year," he said.
Salleron added that EDF had been sold off because of worries
about the Socialists scaling back its nuclear production and
France Telecom by fears that it would be a target for higher
taxes as pressure rises for new ways to lower the deficit.
Some investors took solace in a weaker-than-expected showing
by Communist-backed leftist Jean-Luc Melenchon. Melenchon
immediately threw his support behind Hollande, reducing the
likelihood that the Socialist front-runner could have to tack
further to the left.
"The markets have begun sanctioning the weakness of François
Hollande's proposals to improve the competitiveness of the
French economy and Nicolas Sarkozy's lack of political leeway if
he is elected," Exane BNP Paribas said in a research note.
Some investors have also worried that a victory for Hollande
- who has said that his real opponent is the world of finance -
would be negative for French banks, but Frederique Tassin, a
fund manager with Aviva investors said: "I don't see any reason
why Hollande should dramatically hurt the sector."
He added that any banking sell-off might just last a few
days and that bad news was already priced heavily into the
France's largest bank BNP Paribas was down 4.1
percent, underperforming the European sector.