French Brokers Troubled by Election Results
French money markets, which only last week looked set for further gains, now face a double threat from Sunday’s inconclusive general election and a stock market scandal that threatens to embroil Bourse authorities.
Results late Sunday showed President Francois Mitterrand’s Socialist party had failed to win an overall majority in France’s 577-seat National Assembly, and that the Communists would hold the balance of power in a hung parliament.
“This is the worst possible outcome,” said Richard Reid, chief European economist at London-based UBS-Phillips and Drew.
“It’s not just the French that are tired of this, foreign investors are tired of it. We want an outcome and we haven’t got one.”
Reid and other economists said share and bond prices, as well as the franc, could come under some pressure at their opening on Monday. At best, markets would adopt a wait-and-see stance until Mitterrand showed how he would react.
The result could combine with word of a fresh scandal in the French stock market to deepen gloom among investors.
The French stockbrokers’ association, known as SBF, dropped a bombshell late Friday by announcing it had lost $86 million after October’s stock market crash because of the activities of a former employee.
Dealers said the scandal could cost SBF President Xavier Dupont his job and spark off a chain reaction that could weigh on share prices. Dupont is due to report to the SBF board Monday.
After the uncertain final round of parliamentary elections the main question for investors is whether Mitterrand will try to secure Communist support to form a new government.
For money brokers, this immediately raised the specter of a return to the early years of Mitterrand’s first seven-year term when, in 1981, panicking investors pulled cash out of France to avoid a raft of rigorously socialist economic policies.
Socialist Party chief Pierre Mauroy, the prime minister who brought the Communists into government, said there could be no question of a return to 1981. “At that time we had a negotiated agreement with the Communists, not today.”
Communist Party Secretary General Georges Marchais rejected participation in a coalition government unless Mitterrand drastically altered his policies, but said his deputies would support the Socialists on a case-by-case basis.
