Towards a new five-year term Chapter 1: First round of presidential elections

OUTCOME OF THE FIRST ROUND: SANCTION OR CALL FOR RENEWAL?

*Figures in the above chart and in this note are estimates available from the interior ministry representing 99 percent of the total results (not including votes from abroad).

With a score of 28.6 percent, Socialist Candidate Franois Hollande is clearly coming first after the first round of French presidential elections, immediately followed by Nicolas Sarkozy who garnered 27.1 percent of the votes. This is the first time in the Fifth Republic that an incumbent president has not been in the lead. Yet this call for renewal is less important than in previous estimates and this score is far less severe for the current president than that obtained recently by other outgoing majorities in other European countries. Franois Hollande focused his electoral campaign on the theme of change and actually appears to be quite a new face since he has not occupied a ministerial position before even if he has been a key figure on the French political arena for a long time. The main outcome of this first round is the very high score of the National Front, which comes third with 18 percent of the votes. Its candidate, Marine Le Pen, does not want her faction to be defined as extreme right but as a new right and the first right-wing party in the country today. Her success is the consequence of an offensive campaign targeting themes that divide people, such as Europe, employment, economics and immigration. Votes in favour of Marine Le Pen still appear to be crisis votes and the result of concerns about quite an uncertain economic future.

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HEAD-TO-HEAD
FRANOIS HOLLANDE NICOLAS SARKOZY

57 years old Atypical political career mainly as the leader of the socialist party Has no ministerial experience Counting on the desire for change and the importance of breaking with the past, which he claims has been tainted by gifts to the very rich and to large corporations Wants to curb bank powers and redistribute purchasing power; key proposed taxation measures include introducing a 75-percent rate of income tax for anyone with revenues more than 1 million per year Heavily supported during his campaign by the Socialist Party after the clear-cut results of the primary in October 2011 Can count on support from the Greens and the far left, and can expect some centrists support

57 years old Classic political career former leader of the conservative/traditional right- wing UMP party Maximizes foreign political connections established at international summits and his experience in general (served as president during a full-blown financial and economic crisis) Uncontested leader of the UMP, but his campaign strategy employing far right themes on occasion has created doubts in his own camp Can count on a percentage of votes from right-wing extremists Can expect some centrist support

TWO CRUCIAL WEEKS TO COME

2 favorites, 1 challenger and 2 emerging forces: During the past few weeks of the campaign, three challengers to the two major candidates, Nicolas Sarkozy (Right) and Franois Hollande (Socialist Party) have emerged. Marine Le Pen (18 percent) has successfully implemented her strategy to mobilize the Far Right - traditional party supporters, manual workers and some second-generation immigrants concerned about their economic future that they regard as threatened by new immigrants. Jean-Luc Mlenchon (11.1 percent) has been able to rally the Far Left around a decidedly anti-capitalist/anti-liberal line that appeals to people who feel that the Socialists are too timid in their criticism of the liberal economy. Support for the Far Left explains some announcements from the Socialists, in particular tax for high earners. In the Centre, Franois Bayrou, with 9.1 percent of the votes, gets a score that is far inferior to the one he obtained in 2007, but his supporters will create a significant margin for both the right- and left-wing candidates. With 2.3 percent, the Greens have seen a spectacular loss of support compared to their breakthrough in the 2009 European elections, partly due to a controversial candidate, but this hasnt prevented them from hoping for a fruitful alliance with the Socialists if they win the second round. Whats next? French presidential elections are usually marked by a debate between the two final competitors that is broadcasted on TV, in order for each of them to defend his position and priorities. Considered as a good speaker, Nicolas Sarkozy tried to change this habit by suggesting organizing no less than 3 debates, on society, economic and international issues. Franois Hollande refused this proposal but says he is ready to confront his opponent in one exhaustive debate. In the end debates may not be as impactful on the final result as calls for support to either of the final competitors coming from candidates excluded after the first round. To date, at the second round, Franois Hollande is said to receive 54 percent of the votes, and Nicolas Sarkozy 46 percent. These figures are all but certain,
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as the second round will be very tense. One should first be aware of the abstention up to 20 percent in the first round. Then one needs to consider the decisions made by the king makers and there are 3 of them. First, Franois Bayrou; his supporters include both people disappointed by the traditional conservative majority but also people skeptical in front of socialism as practiced by the socialist party. 1/3 of votes he received are expected to go to Franois Hollande, and 1/3 to Nicolas Sarkozy. The position of the rest of Bayrous supporters remains uncertain. The chief of the MODEM is ready to propose a formal call for support, depending on the answers he receives from the two main competitors on economic and political questions he intends to ask them soon. Second, Jean-Luc Mlenchon; most of the votes he gathered around him should go to Franois Hollande. He himself already called for a vote on 6 May that will be meant to defeat Nicolas Sarkozy. Last but certainly not least, Marine Le Pen. Should she decide to call for supporting one of the candidates, then she would do it on 1 May. Her objective may be to ensure the success of the socialist party in order to get more seats in the National Assembly (Lower House) which is to be renewed mid-June. Yet, whether she asks for voting for one candidate or not, a majority of her supporters are expected to vote for Nicolas Sarkozy.

THE CAMPAIGN IN BRIEF

Confronting debt: Many observers have emphasized the two key candidates caution on thorny topics, particularly on the reduction of public debt. Given the state of French finances, Nicolas Sarkozy and Franois Hollande have refrained from making farfetched promises. French debt policy is the subject of particular attention, and market perceptions will be crucial. In 2012, the Treasury will have to borrow nearly 180 billion to finance the country (pay

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back debt, interest, budget deficit). However, the French remain vigilant on this issue, having seen the Euro crisis and the painful measures currently being implemented in Greece, Spain and Italy to reduce public expenditure. Finding solutions to the crisis: Some of the key issues in 2007, such as the environment, have been overshadowed. However, new topics on both the left and right have emerged in 2012, directly inspired by the economic situation: prioritising help for SMEs to increase French economic competitiveness; improving trade reciprocity between Europe and the rest of the world; and the need to produce in France. Presented as solutions to the crisis, it remains to be seen whether these ideas will be put into action by the winner of the presidential election. Encouraging French narcissism? Foreign policy seems to be particularly missing from this campaign. According to the APCO Worldwide-Euractiv survey carried out by Opinion Way and published on 4 April, France continues to look inward an astonishing position when you consider the key events over the next two years: the Rio Environment Summit in June 2012; the end of the U.S. presidency of the G8 at the end of the year; the start of support for the NATO mission in Afghanistan in 2013; reforms to the EU qualified majority voting system in 2014 (based on the double majority principle: a measure will be passed if a Yes vote is obtained from 55 percent of States, representing 65 percent of the population of the EU); and a year when Greece and Italy, two Member States with fragile finances and subject to strong reforms, will take over the presidency of the EU.

NICOLAS SARKOZY, FRANOIS HOLLANDE: WHAT ARE THEY OFFERING?

When comparing the key economic positions of the two leading candidates, it is of interest to note some particular themes of convergence, as underlined below. FRANOIS HOLLANDE Debt and Deficit Balanced budget by 2017 Major fiscal reforms (which should provide the state with 29 billion) and removal of the tax breaks for the very rich and the largest corporations Put an end to the General Review of Public Policies (RGPP) and nonreplacement of 50 percent of civil servants NICOLAS SARKOZY Balanced budget by 2016 Cut public spending by 40 billion (state and local authority savings of 26 billion; 13 billion in health care and 1 billion in other social benefits) Continue policy of not replacing 50 percent of retiring civil servants, except in primary education Reductions in prescribed drugs (1.5 billion) to help boost health care finances Continue with the General Review of Public Policies (RGPP) to identify areas for possible savings Increase taxes on dividends Minimum taxation for large groups depending on their global turnover (less than 100 groups concerned)

Business Taxes

Implement 3 rates of business tax depending on the size of the company (35 percent, 30 percent and 15 percent or very small companies) Reduce tax breaks and public subsidies to companies that invest in France Increase taxes on bank profits by 15 percent

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FRANOIS HOLLANDE Support for Businesses Pass a Small Business Act Reduce tax breaks and public subsidies paid to companies investing in France Requirement for companies relocating jobs abroad to refund state subsidies received

NICOLAS SARKOZY Implement exemptions on company contributions for those recruiting older people (+ 55); one-year exemptions on company contributions for very small companies employing a junior Develop flexible working (hours and salaries) to be negotiated with companies depending on the growth of activities Promote closer fiscal integration from 2012 promoting a Golden Rule at constitutional level for Eurozone members Promote an economic government of the Eurozone with a Parliamentary Assembly for countries within the Zone Expand Central European Bank powers to further promote growth Create a joint European Commission on industrial policies and competitive practices

Europe

Renegotiate the December 9, 2011, European Treaty Create a European Ratings Agency Create Eurobonds Expand the role of the Central European Bank to further promote growth and employment

International trade

Combat unfair competition by adopting stricter reciprocal rules on social and environmental issues for trade between the EU and the rest of the world

Support a financial transactions tax Develop reciprocal tax agreements across Europe Introduce a Buy European Act to demand greater reciprocity between Europe and the rest of the world and a Small European Business Act Confirm the use of nuclear power while developing renewables

Energy & the environment

Foreign policy

Reduce the share of nuclear power to 50 percent of the energy mix (versus 75 percent) by 2025; make France a leader in marine-based renewables Introduce a climate-energy tax across Europe Introduce gradual increases in water, gas and electricity rates Freeze petrol prices for 3 months Introduce a variable domestic tax on petroleum products Fight to set up a worldwide environmental organisation Focus on strengthening economic links with Mediterranean countries and emerging powers (China, India, Brazil).

Increase technical cooperation with developing countries create a single agency Major focus on Africa Merge the G8 with the G20 Promote the French language and settlement of French people in other countries

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ABOUT APCO WORLDWIDE IN FRANCE

Established in France in 1996, APCO Worldwide manages, enhances and protects clients reputations in an increasingly complex environment, working at the nexus of business, public opinion and government to support clients growth. We deliver strategic insight, research-based planning, creative solutions and state-of-the-art implementation that can be measured across geographies. Our team comprises experts in public affairs and strategic communication and offers services including internal and external corporate positioning, government relations, corporate responsibility and crisis communication. APCO Worldwides Paris team is available for an in-depth and targeted analysis of upcoming French political milestones and their impact with regards to corporate economic governance and international relations. For further information, please visit www.apcoworldwide.com or www.apcoworldwide.com/french Stay tuned for the next chapter, after the second round of the presidential elections!

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