Bloomberg News

Sarkozy Re-election Snarled by Probes, Threatening Euro Role

October 05, 2011

(Updates with poll in 29th paragraph. See EXT4 <GO> for more on the euro crisis.)

Oct. 5 (Bloomberg) -- French President Nicolas Sarkozy’s re-election may be threatened by corruption probes involving his associates, undermining his bid to play a leading role in resolving the European debt crisis.

With about 200 days to go before his term ends, “les affaires,” or the scandals, as the French media calls them, have driven his popularity close to a record low. Two-thirds of respondents in an Oct. 3 poll said they don’t see him winning in 2012. The opposition Socialist Party won control of the senate last month for the first time since World War II. Sarkozy’s Union for a Popular Movement has lost all four local and regional votes since his May 2007 election.

For Sarkozy, 56, who has yet to say if he’ll seek a second term, the setbacks may undercut efforts to tame the euro crisis with Germany’s Angela Merkel. France, whose financial firms held $672 billion of public and private debt in Greece, Portugal, Ireland, Italy and Spain -- the biggest such exposure -- has much at stake from averting the unraveling of the euro.

“Sarkozy is facing a wall,” said Francois Miquet-Marty, who heads Paris-based polling company Viavoice. “He has lost moral credibility with the scandals, he lost politically in the senate elections and he has lost credibility on his economic skills. His own candidacy for 2012 is being questioned and his bargaining power at home and internationally, like with Merkel, is weakened.”

‘End of Reign’

While Sarkozy has made no public statements on the corruption cases -- none of which so far directly implicate him -- the media has all but written him off.

The Nouvel Observateur magazine’s cover story last week was “The End of the Reign,” while the national weekly L’Express went with “The Fall of the Clan.” Weekly magazine Marianne called Sarkozy a burden on his party, with his picture on the cover below the title that reads: “The Millstone.”

The French voting public is ignoring Sarkozy’s role on the international stage, including his efforts to push for action on the Greek debt crisis and the ouster of Libyan leader Muammar Qaddafi. Those achievements have been eclipsed by the scandals and concerns about a slowing economy, falling purchasing power and a depressed job market.

The corruption cases, one dating back to 1995, have engulfed some of Sarkozy’s closest allies and include the alleged illegal funding of a presidential campaign and the tapping of a Le Monde newspaper journalist’s mobile phone.

Phone Tapping

Investigative magistrates have charged Nicolas Bazire, who was a witness at Sarkozy’s 2008 wedding to Carla Bruni, and another long-time ally Thierry Gaubert in connection with a case dubbed “The Karachi Affair.” They are looking into whether payments to secure sales of submarines to Pakistan in the 1990s illicitly funded a French election campaign.

Bazire, the head of Groupe Arnault, the private investment arm of France’s richest man Bernard Arnault, ran the failed 1995 presidential campaign of then-Prime Minister Edouard Balladur. Sarkozy was Balladur’s budget minister and also a spokesman for the campaign. Gaubert was an adviser to Sarkozy at the budget ministry. Lawyers for Bazire and Gaubert, whose investigation is ongoing, have denied they did anything wrong.

French magistrates also are investigating the tapping of Le Monde journalist Gerard Davet’s mobile phone. Davet was looking into allegations that L’Oreal SA heiress Liliane Bettencourt gave cash to Sarkozy’s 2007 presidential campaign.

Bettencourt Affair

Sarkozy allies Frederic Pechenard, head of the French police, and Bernard Squarcini, head of the intelligence services, who said they ordered the tapping, will be questioned by magistrates by the end of the month.

The newspaper Liberation reported Sept. 28 that Sarkozy’s party treasurer received 50,000 euros ($67,900) in cash from a Bettencourt five months before the 2007 ballot. The daily cited an interview with the billionaire’s former accountant.

Sarkozy’s spokesman Franck Louvrier denied the report. His ministers have denied his involvement in any of the cases.

“I’ve been in politics for 35 years and they’ve always tried to trap me in scandals,” Sarkozy told his supporters, Agence France-Presse reported Sept. 27, citing a party member.

The probes, which now dominate headlines in France, have made members of Sarkozy’s own party uneasy.

“The right-wing supporters are themselves losing confidence in their leader,” Gael Sliman, head of Paris-based pollster BVA, wrote last month.

Systemic Response

For now, Sarkozy is shrugging off re-election concerns.

“Make no mistake, the presidential elections will play on the crisis,” Sarkozy is cited by AFP as saying to supporters. “The financial crisis is systemic, the crisis of confidence is systemic, therefore the response also has to be systemic.”

Sarkozy will seek a boost from the November summit of France’s presidency of the Group of 20, where European leaders will try to show they can resolve the 18-month long debt crisis that’s threatening to plunge the global economy into recession.

It may be too early to write off Sarkozy, Bruno Cautres, an analyst at Paris-based political research center Cevipof, said.

“Will current circumstances kill his presidential plans? That’s the thousand-dollar question,” Cautres said. “I don’t think we can say today that Sarkozy is toast; that he is out of the game; that he won’t run. It’s very premature. The story is not written yet.”

Euro to Libya

Domestic economics will play a major role, he said.

“Voters cast a ballot on that and on the ability of a candidate to be president,” Cautres said. “Before the affairs, he was grabbing back popularity and support as his management of the Libyan war and of the euro crisis helped him. The domestic economic situation is his challenge.”

Sarkozy’s government was forced to cut it 2012 growth forecast to 1.75 percent from 2.5 percent, which is still more than half a percentage point above economists’ estimates. His government is struggling to create jobs two years after France emerged from its worst recession in six decades, as the number of jobseekers in the country started increasing again in June.

The president’s popularity is down 5 percentage points from June to 32 percent, a survey by Paris-based BVA for L’Express and France Inter radio released Sept. 27 showed. That brings Sarkozy close to his record low of 30 percent in February.

Inadequate Results

A poll commissioned by Liberation published Oct. 3 showed that 68 percent of the respondents said Sarkozy would lose the 2012 vote if he ran. Sixty-two percent of the voters surveyed by Viavoice said the scandals are a “major disgrace.”

The 1,007 people aged 18 or more surveyed on Sept. 29 and Oct. 1 cited inadequate results on fighting the economic slowdown and the debt and deficits issues among the major reasons for his defeat in 2012. The poll had a margin of error of 2.85 percent.

Meanwhile, all polls taken in the past three months show that Francois Hollande, the Socialist Party’s leading contender, would win the May 2012 elections.

Sarkozy would lose the first round of next year’s vote against his two main Socialist Party rivals, Hollande and Martine Aubry, an Ipsos institute poll showed yesterday. The Socialist Party has not held the presidency for 17 years.

Viavoice also showed for the first time the possible emergence of candidates in Sarkozy’s own UMP party. Respondents cited the current Foreign Affairs Minister Alain Juppe as the best replacement for Sarkozy in the race.

“Sarkozy accumulates handicaps,” said Viavoice’s Miquet- Marty. “It’s terrible for him to have lost most of his credit among voters.”

--Editors: Vidya Root, Steve Rhinds

To contact the reporter on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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