Last week, we looked at the French elections and how they could spell the end of the euro by putting the big-spending Franois Hollande into office.
Now the results of the first round are in place. As polls had predicted, Hollande came out ahead of Nicolas Sarkozy. While the two will now face off in the second round on 6 May, the markets have already reacted, with the key French index, the CAC, falling.
So was our analysis correct? Is the end of Merkozy - and the euro - still a done deal? Or could Sarkozy make a dramatic comeback?
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Marine Le Pen's vote is key to the election
The biggest story of the election so far has been the share of the vote received by the far-right candidate, Marine Le Pen. Unlike her dad in 2002, she failed to make the second round. However, she got 18% of the vote, a record for the Front National (FN).
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This makes her support key to the election. The only way that Sarkozy can win is to get a large number of her supporters to turn out in the second round and vote for him.
Neither should be assumed. While Le Pen's voters are far right on immigration, they are also very anti-Europe. Many voted for Le Pen as a protest, and will therefore not vote at all in the second round.
Others who voted for Le Pen have more sympathy with the economic views of Hollande than those of Sarkozy. There are even those who would like Sarkozy to lose so that the FN becomes the main party of the right.
Sarkozy will certainly not get any help from Le Pen herself. Indeed, she has stated that she will not endorse a candidate. Her campaign director hasasked "how can you choose between Sarkozy and Hollande when you see the state in which they have left the country?"
Expect lots of euro and banker bashing
That won't stop Sarkozy from trying to win the FN vote by doubling down on immigration and law and order. However, there are limits to how much more hardline he can become on these issues and still hold on to the political centre ground.
Therefore the only option is for him to adopt some of the FN's economic policies. This will mean distancing himself from policies such as the fiscal compact. We can also expect him to speak more about his ideas for a tax on financial transactions.
As for Hollande's tactics, many of Le Pen's votes came from policy areas where the far left was expected to do well. Hollande will therefore hope that economic not social issues will matter more to these voters. So he'll be talking about his plans to spend large sums of money to create jobs, and anti-banker measures.
He will also remind voters of his plans to get Europe to move away from austerity. While Brussels' plans to balance budgets quickly may indeed be unrealistic, Hollande's rejection of them will also reduce bond market confidence, and hasten the end of the euro.
Who will win?
It would be foolish to rule out Sarkozy; history is littered with shock incumbent victories. Everyone agrees that Hollande lacks Sarkozy's experience and charisma. Indeed, if you watched the short news clips on Sunday night you could easily see the difference between the two men.
There will also be at least one debate between Hollande and Sarkozy, and the French president has called for two more.
However, Sarkozy has a huge mountain to climb in only a very short time. Three polls published on Sunday put him eight, nine and 12 points behind respectively.
Of course, the gap has shrunk from a peak of 24 points last October and 18 points as late as February. However, Sarkozy's share is no better it was immediately after the Toulouse crisis. His approval figures remain around or below 40%, which suggests that his chances are no greater than the 20% the bookies are giving him.
How this will affect your portfolio
Overall, the first round does little to change our view that Hollande is likely to win. The hostility of most FN-voters to the euro will push both candidates in a more anti-Brussels direction.
Of course, the fall in the CAC is evidence that markets are starting to become aware of this. However, the decline was still quite small. This means we expect it to go down further.
The outlook for the wider eurozone is little better. Mark Miller of Capital Economics thinks that the latest eurozone-wide economic data releases suggest that the pace of decline increased more quickly this month.
