Image: Jim Jubak

Jim Jubak

Ready for a really important (and raucous) election?

And, no, I don't mean Tuesday's Republican primary in New Hampshire.

I'm talking about a race in which one contender has compared his opponent to a sugar cube, another calls the incumbent "the Bonsai," and the incumbent thinks his best hope for re-election might be reversing his no-new-"generalized"-taxes pledge.

The results of that election could throw the eurozone into so much chaos it could lead to the end of the euro.

I'm talking about France, of course, where President Nicolas Sarkozy currently doesn't have a truffle's chance in Lyon of winning the April 22/May 6 double-elimination election.

There's a serious issue beneath the sheer entertainment value of an election where one candidate (Dominique de Villepin) calls his opponent (Sarkozy) an uncultured oaf.

Flirting with a euro fix

Sarkozy is committed to making the euro work, and he has developed a working relationship with Germany Chancellor Angela Merkel in crafting the current solution (such as it is) to the euro debt crisis. (For more on the "Merkozy" solution to the crisis and what it would mean for the eurozone if it is implemented, see my Dec. 22, 2011, column, "The euro 'fix' we have to live with.")

His main opponent and the current leader in the polls, the Socialist François Hollande, has made it clear that he thinks Sarkozy has given away too much to Merkel's Germany. Hollande has more than signaled his opposition to the treaty of fiscal discipline that Merkel and Sarkozy worked out at the last European summit, going so far as to say that if he is president, France will not sign.

Hollande's solution to the euro debt crisis is so radically different from Merkel's that it's hard to see how the two countries could bridge the gap.

And without the German-French partnership, it's hard to see the euro surviving, frankly.

Think the markets might freak out over this possibility if Hollande is still leading in the polls in, say, March?

You bet.

OK, some new taxes

So just how cooked is Sarkozy's oie?

  1. He's trailing Hollande and barely beating extreme right-wing candidate Marine Le Pen in the polls. On the current polling, Sarkozy would get past Le Pen in the April 22 first round of voting but lose to Hollande in the second round by 10 percentage points.
  2. The results will be even worse if France loses its AAA credit rating before the April vote. That would be a huge blow to French pride, and Sarkozy would be blamed. You can tell the French president thinks the loss of the AAA rating is a real possibility because in recent days he has been saying that the rating is no big thing.
  3. Unemployment in France has climbed to near 10% and looks to go higher as the country heads toward recession.
  4. Did I mention a likely recession? The government is hoping for 1% growth in 2012; it is unlikely to get it.
  5. Sarkozy's plan for increasing the competitiveness of the French economy -- and thus of upping the country's growth rate -- is something called the "social VAT." This plan, which faces daunting odds of getting past French legislators during the narrow window for action open in January, would turn costs now paid by French companies to costs paid by French taxpayers in an effort to close the company tax gap with Germany and other eurozone exporters. Taxpayers would face a higher VAT (value-added tax, a kind of sales tax).

It's hard to see why taxpayers would decide this didn't violate Sarkozy's oft-repeated pledge of no new taxes. I doubt that the fine print, which reads "no new 'generalized' taxes," would be enough to get him off the hook. (And an increase in the VAT seems pretty generalized to me anyway.)