In France, the Socialist candidate, Francois Hollande, won a narrow victory in the first round of France's presidential election. He and Nicolas Sarkozy will now move to a runoff. But Hollande will not mainly be running against Sarkozy. As his campaign manager said, the vote “is a reaction against austerity." Hollande's campaign platform is, in large part, a protest against austerity.

France's opposition Socialist Party candidate for the 2012 French Presidential election Francois Hollande adjusts his glasses on stage after the announcement of the estimated results of the first round of the French 2012 presidential election, on April 22. (JEAN-PIERRE MULLER/AFP/GETTY IMAGES)

All this makes the French election interesting. But its the effective referendum on the euro-zone project that makes it, for the United States, important. Hollande has also promised that, if elected, he will renegotiate the treaties governing the austerity targets across Europe. Some think this will doom the euro zone. Others think it's the only way to save it. The answer matters for more than just the future of Europe. It might decide the American election, too.

In an interview with my colleague Brad Plumer, Art Goldhammer, who is at Harvard's Center for European Studies, made the optimist's case:

"If Hollande is elected and goes through with trying to renegotiate the euro zone pact, he’ll find support from countries like Spain and Italy. Spain desperately needs to do something to bring down its 25 percent unemployment rate, and Mario Monti in Italy was ostensibly put in there to implement the pro-austerity consensus, but he’s having difficulty with the country’s labor unions, and knows something needs to be done to stimulate the economy."

"So everyone outside Germany has an interest in changing things. And I think [German Chancellor Angela] Merkel has evolved on this, recognizing that an all-austerity approach isn’t going to work. But she’s facing her own election in 2013 and a substantial portion of her party doesn’t want to budge on this. So if I’m correct that she’s evolved, she has a political problem. Hollande’s election might give her some room to maneuver, by building a consensus for more pro-growth policies. Hollande’s election could be a signal of a change in thinking and influence German politics."

Goldhammer's point on Merkel is worth taking seriously. Germany, for historical reasons, is very leery to make any major moves without the backing of France. Throughout the euro-zone effort, Merkel and Sarkozy have stood hip-to-hip. Now, to retain French support for their agenda, Germany will have to ease up on austerity and come up with a plausible growth strategy. And perhaps they will. Or perhaps they'll decide that enough is enough, unemployment in Germany is under six percent, and it's time to cut their losses.

Hollande's election could, in other words, permit a course correction that is already overdue in Europe. Or it could trigger a crisis that further imperils the European project and sends shockwaves of financial uncertainty over to our shores.

On Saturday, Paul Krugman made the case that it's better to gamble on a new direction that might work out rather than double down on a failing strategy. "If Sarkozy somehow pulls off an upset win," he wrote, "it will mean more of the same European economic orthodoxy — the insistence that fiscal responsibility is the only virtue and austerity the universal answer. This orthodoxy somehow retains its grip despite overwhelming evidence that it’s wrong and disastrous failures in practice. A Hollande victory would shake things up, and offer at least the possibility of something better."

And markets may welcome that. At the very least, they should, by now, be expecting it. “Hollande’s economic program is rather clear, and both it and his chances of winning have been factored into the thinking of a lot of investors already,” Gilles Moec, co-director European economic research at Deutsche Bank, told Time. “What initially was an isolated growth position when Hollande made it earlier this year has now become the consensus in Europe – including within markets that view growth as at least important as debt reduction in overall economic outlook.”

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Top stories

1) France held the first round of its closely watched presidential elections. "François Hollande has taken a narrow lead in the first round of France’s presidential elections, setting up a run-off with Nicolas Sarkozy after a vote that saw one in five ballots go to the far right National Front. Following a bitter campaign marked by opposing visions of how to steer France’s debt-laden economy through the eurozone crisis, the Socialist challenger won 28.5 per cent of the votes, with 96 per cent counted, according to the interior ministry on Sunday evening. The centre-right Mr Sarkozy, who is seeking to avoid adding his name to the string of European incumbents swept aside since the start of the sovereign debt crisis, secured 27 per cent support in a first-round election with a turn out of more than 80 per cent. But the shock of the night was a record 18.1 per cent performance by the National Front’s Marine Le Pen." Tom Burgis, Hugh Carnegy, James Boxel, and Scheherazade Daneshkhu in The Financial Times.

Hugh Carnegy profiles François Hollande: "Mr Hollande is seen with suspicion by financial markets. He promises fiscal discipline, but plans to raise spending and taxes; unstitch some of Mr Sarkozy’s pension reforms; and crack down on the banks and executive pay. He once said: 'I don’t like the rich.' Yet having said in January that his 'true adversary' was the world of finance, he said in London soon after: 'I am not dangerous.' It prompted Mr Sarkozy to remark that Mr Hollande was 'Mitterrand in France and Thatcher in Britain'."

@ddayen: This is the first time an incumbent has lost the first round of the French elections, per BBC

@TheStalwart: If you're running for President of France, it seems like having the first name Francois would offer you a pretty big leg up.

2) House Republicans are moving back towards the debt deal's spending levels. "Boxed in by their Senate colleagues on one side and House conservatives on the other, House Republican leaders are starting the slow march toward the Budget Control Act without explicitly walking away from their own House-passed budget. Members across the ideological spectrum agree: House Appropriations Chairman Hal Rogers (R-Ky.), who wanted to stick to the BCA, and Budget Vice Chairman Scott Garrett (R-N.J.), who helped cut the budget cap to $1.028 trillion, said they anticipate a short-term continuing resolution in September at the BCA’s fiscal 2013 spending level of $1.047 trillion...In the meantime, however, Rogers is walking a fine line. He wants to pass all 12 spending bills, and he must pass at least some to have leverage in negotiations with the Senate over a continuing resolution. To do so, he needs House Democratic votes because many Republicans routinely vote against spending bills." Daniel Newhauser and Humberto Sanchez in Roll Call.

3) Obama has made increasing use of executive power for domestic goals. "One Saturday last fall, President Obama interrupted a White House strategy meeting to raise an issue not on the agenda. He declared, aides recalled, that the administration needed to more aggressively use executive power to govern in the face of Congressional obstructionism...Increasingly in recent months, the administration has been seeking ways to act without Congress. Branding its unilateral efforts 'We Can’t Wait,' a slogan that aides said Mr. Obama coined at that strategy meeting, the White House has rolled out dozens of new policies -- on creating jobs for veterans, preventing drug shortages, raising fuel economy standards, curbing domestic violence and more...Aides say many more such moves are coming. Not just a short-term shift in governing style and a re-election strategy, Mr. Obama’s increasingly assertive use of executive action could foreshadow pitched battles over the separation of powers in his second term, should he win." Charlie Savage in The New York Times.

4) The House will vote on a slew of cybersecurity bills this week. "The House is set to vote on a host of cybersecurity bills next week, but the fate of the legislation rests in the Senate. The House is expected to approve the Cyber Intelligence Sharing and Protection Act (CISPA), which would tear down legal barriers that discourage companies from sharing data about cyber attacks...But the White House and Senate Democrats argue CISPA is inadequate. They say any cybersecurity legislation should include tougher privacy protections and should require critical infrastructure systems to meet minimum security standards...The White House has endorsed a cybersecurity bill from Sens. Joe Lieberman (I-Conn.) and Susan Collins (R-Maine) that would empower the Homeland Security Department to set mandatory security standards for critical systems, such as electrical grids or chemical plants." Brendan Sasso in The Hill.

5) The Supreme Court will take up federal power again in an immigration case. "Mr. Eason is one of many people across the country who will be watching closely when the Supreme Court hears arguments on Wednesday on the bitterly disputed immigration enforcement law that was passed two years ago in Arizona, inspiring the Georgia statute and similar ones in Alabama, Indiana, South Carolina and Utah. Arizona’s law, known as SB 1070, expanded the powers of state police officers to ask about the immigration status of anyone they stop, and to hold those suspected of being illegal immigrants. The law was challenged by the Obama administration, and four of its most contentious provisions were suspended by federal courts. Courts later temporarily blocked other state laws, including the one in Georgia. Constitutional lawyers on both sides of the argument say the case raises fundamental questions about federal powers." Julia Preston in The New York Times.

Top op-eds

1) FRIEDMAN: American politics has become a 'vetocracy.' "Does America need an Arab Spring? That was the question on my mind when I called Frank Fukuyama, the Stanford professor and author of 'The End of History and the Last Man.' Fukuyama has been working on a two-volume opus called 'The Origins of Political Order,' and I could detect from his recent writings that his research was leading him to ask a very radical question about America’s political order today, namely: has American gone from a democracy to a 'vetocracy' -- from a system designed to prevent anyone in government from amassing too much power to a system in which no one can aggregate enough power to make any important decisions at all?...We can’t be great as long as we remain a vetocracy rather than a democracy. Our deformed political system -- with a Congress that’s become a forum for legalized bribery -- is now truly holding us back." Thomas Friedman in The New York Times.

2) PEARLSTEIN: Polarization is a political market failure. "If you asked Americans to identify the most noticeable change in U.S. politics over the past two decades, they’d probably answer that politics has become more polarized and that this has made it harder for the government to address the problems the country faces....We know the solutions to escalating polarization: A disarmament treaty for the campaign finance arms race involving spending caps and contribution limits. A ban on campaign spending by independent groups. A requirement that all broadcasters and cable networks provide free advertising time to all candidates...Arms races, free riding, tragedies of the commons -- these failures in economic markets are well understood. The solutions usually involve some form of government action or regulation. But when similar failures occur in political markets, there are no institutions capable of stepping in and forcing the necessary collaboration or collective action. Government can’t be the solution when it is the problem." Steven Pearlstein in The Washington Post.

3) KRUGMAN: Romney places too much blame on the Obama administration. "Mr. Romney wants you to attribute all of the shortfalls in economic policy since 2009 (and some that happened in 2008) to the man in the White House, and forget both the role of Republican-controlled state governments and the fact that Mr. Obama has faced scorched-earth political opposition since his first day in office. Basically, the G.O.P. has blocked the administration’s efforts to the maximum extent possible, then turned around and blamed the administration for not doing enough. So am I saying that Mr. Obama did everything he could, and that everything would have been fine if he hadn’t faced political opposition? By no means. Even given the political constraints, the administration did less than it could and should have in 2009, especially on housing. Furthermore, Mr. Obama was an active participant in Washington’s destructive 'pivot' away from jobs to a focus on deficit reduction...But that’s not the critique Mr. Romney is making." Paul Krugman in The New York Times.

4) SUROWIECKI: Don't forget about long-term unemployment. "TThe talk in Washington these days is all about budget deficits, tax rates, and the 'fiscal crisis' that supposedly looms in our near future. But this chatter has eclipsed a much more pressing crisis here and now: almost thirteen million Americans are still unemployed. Though the job market has shown some signs of life in recent months, the latest figures on new jobs and on unemployment-insurance claims have been decidedly unimpressive...What’s most troubling is that so much of this unemployment is long-term. Forty per cent of the unemployed have been without a job for six months or more--a much higher rate than in any recession since the Second World War--and the average length of unemployment is about forty weeks, a number that has changed very little since 2010. The economic recovery has now lasted nearly three years, but for millions of Americans it hasn’t yet begun." James Surowiecki in The New Yorker.

5) LAFFER AND MOORE: States offer a lesson in the dangers of high taxes. "Barack Obama is asking Americans to gamble that the U.S. economy can be taxed into prosperity. That's the message of his campaign for the Buffett Rule, which raises income-tax rates on millionaires to a minimum of 30%, and for the expiration of the Bush tax cuts. He wants to raise the highest income tax rate by 20%, double the rate on capital gains, add a new 3.8% tax on all capital earnings, and nearly triple the dividend tax rate...Over the past decade, states without an income tax have seen 58% higher population growth than the national average, and more than double the growth of states with the highest income tax rates...Taxes aren't all that matters, to be sure, and low-tax states don't always outperform high-tax ones. Often people who smoke don't get cancer, and sometimes people who don't smoke do get cancer, but that doesn't mean it's smart to smoke." Arthur Laffer and Stephen Moore in The Wall Street Journal.

Top long reads

Ken Auletta on Stanford and Silicon Valley's attempt to transform education: "Hennessy, like Andreessen, believes that online learning can be as revolutionary to education as digital downloads were to the music business. Distance learning threatens one day to disrupt higher education by reducing the cost of college and by offering the convenience of a stay-at-home, do-it-on-your-own-time education. 'Part of our challenge is that right now we have more questions than we have answers,' Hennessy says, of online education. 'We know this is going to be important and, in the long term, transformative to education. We don’t really understand how yet.'...Online education might also disrupt everything that distinguishes Stanford. Could a student on a video prompter have coffee with a venture capitalist? Could one become a T-student through Web chat? Stanford has been aligned with Silicon Valley and its culture of disruption. Now Hennessy and Stanford have to seriously contemplate whether more efficiency is synonymous with a better education."

Harold Meyerson looks at New York Attorney General Eric Schneiderman's push to investigate Wall Street: "In February 2011, one month after he’d been sworn in as New York state’s attorney general, Eric Schneiderman sat down with the staff attorney who’d been delegated to track the negotiations that the 50 state attorneys general and the Obama administration were conducting with five of the country’s biggest banks...He asked his aide how the talks were going. 'I was told it was being handled,' he says. The administration, his aide informed him, had proposed that the banks come up with $20 billion for aggrieved homeowners and former homeowners. Schneiderman wasn’t satisfied. What documents, he asked, had been subpoenaed? None, he was told. Who’d been called in to testify? Nobody, he was told. Most important, what did the banks want in return for paying the penalty? The aide responded that the issue had never been raised. Schneiderman was shocked."

Prohibition and legalization aren't the only choices in the war on drugs according to Mark Kleinman, Jonathan Caulkins, and Angela Hawken: "'For every complex problem,' H.L. Mencken wrote, 'there is an answer that is clear, simple and wrong.' That is especially true of drug abuse and addiction. Indeed, the problem is so complex that it has produced not just one clear, simple, wrong solution but two: the 'drug war' (prohibition plus massive, undifferentiated enforcement) and proposals for wholesale drug legalization. Fortunately, these two bad ideas are not our only choices. We could instead take advantage of proven new approaches that can make us safer while greatly reducing the number of Americans behind bars for drug offenses...Blanket drug legalization has some superficial charm--it fits nicely into a sound-bite or tweet--but it can't stand up to serious analysis. The real prospects for reform involve policies rather than slogans. It remains to be seen whether our political process--and the media circus that often shapes it--can tolerate the necessary complexity."

David Barstow investigates Wal-Mart's attempts to cover up systemic corruption in their Mexico operations: "Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-Mart de Mexico’s top executives not only knew about the payments, but had taken steps to conceal them from Wal-Mart’s headquarters in Bentonville, Ark. In a confidential report to his superiors, Wal-Mart’s lead investigator, a former F.B.I. special agent, summed up their initial findings this way: 'There is reasonable suspicion to believe that Mexican and USA laws have been violated.' The lead investigator recommended that Wal-Mart expand the investigation. Instead, an examination by The New York Times found, Wal-Mart’s leaders shut it down."

Cover interlude: Carrie Manolakos plays Radiohead's "Creep."

Got tips, additions, or comments? E-mail me.

Still to come: The Fed's forecast will offer hints on what's next; states will have a choice to make on exchanges; Congress has gotten in the way when the Postal Service wanted to change; the shale boom means less oil imports; and a kitten meets a ball and tries to assert its dominance.


Senate Dems might vote on the Bush tax cuts before the election. "Democrats in the U.S. Senate are considering whether they should vote before the November election on extending income tax cuts that expire at the end of 2012...If Congress doesn’t act by the end of the year, income tax rates in 2013 would return to levels set before the 2001 and 2003 tax cuts took effect during President George W. Bush’s administration. The top rate would increase to 39.6 percent from 35 percent, the child tax credit would shrink, capital gains rates would rise to 20 percent from 15 percent and the estate tax would affect more families...Most Democrats, including President Barack Obama, want to extend the tax cuts for almost all taxpayers. Obama would allow the tax cuts to expire for married couples earning at least $250,000 a year and individuals making at least $200,000." Richard Rubin in Bloomberg.

The Fed's economic forecast will provide a clue on their next move. "Financial markets seem to swerve daily on speculation about what the Federal Reserve is going to do next. One day investors expect the Fed to launch a new bond-buying program to reduce long-term interest rates and boost growth. The next they expect it to raise short-term interest rates sooner than planned to restrain inflation. Investors have been all over the map. To really understand where the Fed is going, it's essential to see how its forecast for the economy is changing. If the Fed expects economic growth to slow, inflation to fall, or unemployment to stall at high levels or rise, it will be inclined to do more to support growth with new programs to reduce interest rates. If it sees the opposite, the conversation turns toward reining in credit. The changing forecast will be one of the most important topics of discussion at the central bank's policy meeting Tuesday and Wednesday, when officials will update their quarterly economic projections." Jon Hilsenrath in The Wall Street Journal.

@NickTimiraos: Housing hitting a bottom, and housing actually getting a full-fledged recovery are two totally different things.

Also, the Fed? Not so good at the transparency thing. "The Federal Reserve chairman, Ben S. Bernanke, has tried to speak more clearly and more frequently than his predecessors. He has lectured college students, met with members of the military and, since last April, held quarterly news conferences. But as Mr. Bernanke prepares to meet the press for the fifth time Wednesday afternoon, after a scheduled meeting of the Fed’s policy-making committee on Tuesday and Wednesday, there are reasons to doubt that the efforts are increasing public understanding of monetary policy. Experts and investors have continued to disagree about the plain meaning of the Fed’s recent policy statements. Some say the increased volume of communication is creating cacophony rather than clarity. Political criticism of the Fed has continued unabated. And the economists and analysts who are paid to predict and translate the Fed’s actions and pronouncements for investors say that demand for their services has only increased." Binyamin Appelbaum in The New York Times.

@AndyHarless: If the Fed has a dual mandate, how come it has a target for inflation but no target for employment?

The CFTC is exploring ways to ease derivatives rules. "US regulators are exploring ways to give large foreign banks and overseas subsidiaries of US lenders a reprieve from stringent new derivatives rules, potentially alleviating one of the biggest concerns facing global financial institutions. The US Commodity Futures Trading Commission is looking to grant a temporary exemption to swap dealers that may fall under the jurisdiction of foreign financial authorities from complying with a host of post-financial crisis regulations governing derivatives transactions, people familiar with the matter said...For example, the CFTC is examining whether a US bank’s foreign subsidiary transacting with foreign counterparties should be exempt from some new rules governing derivatives dealers if the subsidiary’s home country financial supervisors adopt robust oversight. A foreign bank’s derivatives desk also may be exempt from US rules if its national regulator employs rules closely mirroring those of the CFTC." Shahien Nasiripour and Tom Braithwaite in The Financial Times.

The JOBS Act will mean changes for small banks. "The JOBS Act signed into law this month includes a provision that raises the number of shareholders at which small banks must register with the SEC to 2,000. The JOBS Act aims to increase jobs by reducing regulations on companies. The change means that small banks are free to raise capital by attracting new investors without taking on regulatory burdens that are associated with the SEC filings. It also could breathe some new life into bank mergers and acquisitions, which last year stood at the second-lowest level since 1980. The new rule comes at a time when community institutions are struggling to stay profitable in a period of low interest rates, stagnant lending and rising compliance costs from other new regulations. Returns on assets at institutions with $1 billion or less in assets was a third less than the industry average in 2011, according to the Federal Deposit Insurance Corp." Robin Sidel in The Wall Street Journal.

The I.M.F. added $430 billion to its emergency lending reserves. "The International Monetary Fund has raised at least $430 billion in extra lending capacity to be used if the euro zone crisis worsens or global financial conditions deteriorate, it said Friday afternoon. The announcement came during the spring meetings of the I.M.F. and its sister institution, the World Bank. World leaders gathered in Washington to discuss how to bolster growth, reduce unemployment and poverty and ensure financial stability around the world...The new commitments come mostly from wealthy, developed economies: $60 billion from Japan; $15 billion each from Britain, Saudi Arabia and South Korea; and smaller amounts from countries including Sweden, Norway, Poland, Australia, Denmark and Singapore...But some rapidly growing, cash-rich emerging economies -- including Brazil, China, Russia and India -- made no specific pledges at the spring meetings." Annie Lowrey in The New York Times.

Jetpack interlude: A man with a jetpack flies over Switzerland.

Health Care

States need to decide: Set up their exchanges or let the Feds do it for them? "If the Supreme Court upholds the health reform law this summer, states could be forced to a moment-of-truth situation: Do they set up a health insurance exchange, or do they let the feds come in and run theirs? The problem is that many legislatures could be long gone by the time the Supreme Court has an answer. That leaves special sessions as their main option for sorting out the exchange question -- but state lawmakers and those working with these states aren’t hopeful about the chances of calling them in the aftermath of the court’s ruling. With the court’s decision expected in June, a ruling that upholds most or all of the Affordable Care Act would put states on a tight timeline to assemble an exchange, if they choose to. The Department of Health and Human Services will certify exchanges in January, and enrollment is scheduled to start in October 2013." Jason Millman in Politico.

GAO says an $8 billion Medicare test project is a boondoggle. "Medicare is wasting more than $8 billion on an experimental program that rewards providers of mediocre health care and is unlikely to produce useful results, federal investigators say in a new report. The report, to be issued Monday by the Government Accountability Office, a nonpartisan investigative arm of Congress, urges the Obama administration to cancel the program, which pays bonuses to health insurance companies caring for millions of Medicare beneficiaries. Administration officials, however, defended the project and said they would not cancel it because it could improve the quality of care for older Americans...In the 2010 health care law, Congress cut Medicare payments to managed care plans, known as Medicare Advantage, and authorized bonus payments to those that provide high-quality care. Investigators found that most of the money paid under the demonstration program went to 'average-performing plans' rated lower than the benchmarks set by Congress." Robert Pear in The New York Times.

@petersuderman: Who's excited about next week's Medicare Trustees report? #excitement

Domestic Policy

The Postal Service wants to diversify its business. Congress isn't letting them. "The Postal Service in 2000 began operating a secure system that would have allowed it to remain the primary conduit for most Americans’ monthly payments. But the Internet industry objected, and Congress successfully pressured the Postal Service to abandon it. The same pattern has repeated several times over the last decade, with the Postal Service identifying a way to cope with the decline of traditional mail, only to have companies -- and ultimately Congress -- object. The agency’s troubles, which could result in the closing of thousands of post offices and hundreds of mail processing centers as early as next month, have many sources. Some are the inevitable result of technological changes, and others are the result of missteps by the Postal Service. But top Postal Service officials and outside experts say that another, underappreciated factor has been an insistence by Congress that the service not compete directly with private companies." Ron Nixon in The New York Times.

Community colleges are being blasted by...the American Association of Community Colleges. "In an occasionally scorching report, a commission on the future of community colleges criticized the two-year institutions for 'student success rates that are unacceptably low, employment preparation that is inadequately connected to job-market needs and disconnects in transitions between high schools, community college and baccalaureate institutions.' The report, 'Reclaiming the American Dream: Community Colleges and the Nation's Future,' was released Saturday in Orlando, Fla., at the convention of the American Association of Community Colleges, which organized the commission. The nation's 1,100 community colleges enroll about 44% of all U.S. undergraduates. They have been celebrated for years by presidents from George H.W. Bush to Barack Obama as an important way for Americans of all ages to get trained for well-paying jobs as well as a bridge to four-year college degrees." David Wessel in The Wall Street Journal.

@ModeledBehavior: If things are really have been getting worse in the U.S., shouldn't we start losing our spot as top desired place to move?

Adorable animals being adorable interlude: A kitten meets a ball for the very first time.


The shale boom is lessening U.S. dependence on oil imports. "Just as nuclear scientists hoped atomic power was the answer to the world’s energy needs in the 1950s, oil and gas producers believe this new resource could bring plentiful low-cost power. Shale could also bring energy independence for many nations, freeing them from a reliance on imports. More than 50 years ago energy experts began speaking of 'peak oil' - the idea that the world was passing the point of maximum production and that supplies would decline. Today, shale calls that assumption into question. In the US new extraction techniques have transformed gas production, opening reserves that some estimate will last 100 years. Liquid-rich shales - ones that also contain oil - have enabled the US significantly to cut its dependence on crude imports. Shale also has the potential to reshape domestic economies. In this year’s State of the Union address. President Barack Obama said experts predicted it would support 600,000 jobs." Sylvia Pfeifer in The Financial Times.

@daveweigel: Watching this Keystone fight, you kinda get the sense that the energy industry is good at lobbying and PR.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.