French bankers, traders and hedge fund managers should resist the urge to book a one-way flight out of Paris if Francois Hollande becomes president in May. The French socialist leader has identified the “world of finance” as his main adversary – simultaneously discarding outgoing president Nicolas Sarkozy and stealing a theme from his upcoming campaign. Tapping into anti-bank sentiment is a popular political strategy. But, the wrath of blind punitive socialist justice isn’t about to descend on French finance. In fact, the serious reforms Hollande proposed aren’t particularly scary, and the scary ones he hinted at aren’t serious.
The most surprising measure Hollande put forward is the separation of investment and retail banking. This is likely to encounter vigorous opposition from French banks, but is hardly the type of Armageddon that would bring finance to its knees. After all, the UK is already pushing ahead with plans to ringfence retail banks. French support might even tip the balance in favour of a similar split across the European Union.
The same goes for Hollande’s proposal to tax higher incomes at 45 per cent — hardly a punitive rate among comparable EU nations.
Then, there are other, more populist proposals. Hollande says he wants to ban stock options, except for “innovative companies”. He also wants to prohibit derivatives when they have no link with what he calls the “real economy”. These are the type of vague and wacky ideas likely to be dropped quickly once the new government is faced with their likely consequences: The rapid decline of Paris’s financial markets, or companies moving abroad, so that they can continue to compete for talented executives.
The real concerns raised by Hollande’s project are not what he proposes to do to finance but what he threatens to do to the economy. Ideas such as the creation of a public investment bank, or big joint pan-European investment projects, smack of old, unreformed socialist interventionism. Hollande is yet to admit a difficult truth: Just because markets go wrong, it doesn’t mean government knows best.