The first round of the French presidential election was less exciting than most had expected. The two top candidates - according to the opinion polls - turned out to be the winners of this first round. Conservative Nicolas Sarkozy won 31.1% of the votes, while Socialist S?©gol??ne Royal won 25.8%. Of the other 10 candidates, only Bayrou and Le Pen made it into double digit territory claiming 18.5% and 10.5% of the votes, respectively.

The second round of the election will take place in two weeks, on May 6, and will be a classic run up between a conservative and a socialist candidate. In the second round 50% of the votes may be redistributed to one of the two. Uncertainty is large, but many surveys seem to indicate a small advantage to Sarkozy.

In his economic policy, Sarkozy aims to revitalise the French economy using traditional liberal measures. He favours exempting overtime work for taxes and contributions, while at the same time cutting overall taxes and social contributions by 4%. Furthermore, he aims to increase the flexibility of the labour market by boosting the attractiveness of young people by limiting their rights on the labour market. Finally, he wants to reduce the size of the public sector. On other policies, it is worth noting that he wants to tighten the policy towards criminals, and put a stop to new EU memberships (read: Turkey).

Royal, on the other hand, is by many measures a traditional socialist. Royal wants to raise the minimum wage, and reduce the flexibility that small corporations enjoy when hiring. Furthermore, she wants to modify the 35-hour working week to "reduce negative consequences for workers and employees". Finally, she wants to keep the size of the public sector and level of taxes intact. Royal seems more focused on giving the ECB a target for output/employment along with the current target of inflation. On other policies, it is worth noting that she seems more inclined towards further EU integration and in principle is in favour of admitting Turkey to the union.

We believe that Sarkozy enjoys a small advantage to Royal before the final round of the election. In general we see few financial implications should Sarkozy win. It may be slightly favourable to the euro, but apart from that the effects should be negligible. A win for Royal is negative for the euro, and it is possible that the bond yield spread between Germany and France widens a bit.

More details on the economic political programmes of the two candidates.

Headlines in Sarkozy??™s economic programme

• Will exempt overtime from tax and social security charges
• Proposes to cut four percentage points from tax/social charges and thus return 68 billion euros to the French people.
• Wants a single labour contract, with social rights increasing over time, flexibility he says will encourage employers to hire more staff.
• Vows to ban "golden parachute" payouts to executives and prevent stock options being confined only to company bosses.
• 35-hour work week, retirement at 60 should be retained, but viewed as a minimum, not maximum, with people free to work more or longer if they want
• Cut public sector staff levels to boost civil service wages and reduce public debt.
• Sarkozy's UMP party has pledged to bring public debt below 60 pct/GDP over five years, limit public spending increases to 1.5 pct over five years
• Bring generous state pensions in transport, energy sectors in line with rest of public sector
• Finance ministers should pressure ECB into lowering the euro. ECB should pursue growth and jobs as well as fight inflation, but a change in bank's statutes is unrealistic.
• EU negotiations with Turkey should result in strategic partnership, not full membership
• Pause in new EU memberships after Romania, Bulgaria
• Hopes to resolve impasse over the European constitution by 2009. Calls for a simplified treaty that will:
• Wants "deep, sincere, staunch" friendship with Washington, but says United States should be ready to take criticism. Calls for United States to do more to halt global warming.

Headlines in Royal??™s economic programme

• Raise monthly minimum wage to 1,500 euros over five years; 5 percent increase in small pensions at or below minimum wage
• Create 500,000 jobs for young workers. Ensure no young person is left unemployed for more than six months without right to training or job. Encourage small firms to hire nonqualified school leavers, with state paying wages and charges for a year
• Abolish government's CNE labour law, which makes it easier for small firms to hire and fire workers
• Review 35-hour work week with aim of "reducing negative consequences for workers and employees"
• Aim for annual economic growth of 2.5 percent from 2008; cut public debt to 60 percent of gross domestic product by 2012 from some 64 percent in 2006
• Keep overall taxes and charges at current level
• Make state aid to companies conditional on promise not to shed staff when company is making substantial profits. Aid would have to be repaid if company relocated abroad
• Tax firms more on dividends, less on reinvested profits; change tax treatment of stock options; abolish "golden parachutes"
• Increase spending on research by 10 percent a year
• Build 120,000 public housing units a year
• Aim for 20 percent of French energy needs to be covered by renewable energies by 2020
• Make European Central Bank adopt growth and employment as objectives as well as controlling inflation
• Favours Turkey's EU entry in principle but says EU has to overcome its own problems before admitting Turkey
• Draw up new constitution including text on workers' rights and public services and put the treaty to referendum in 2009