PARIS — France handed the presidency Sunday to leftist Francois Hollande, a champion of government stimulus programs who says the state should protect the downtrodden – a victory that could deal a death blow to the drive for austerity that has been the hallmark of Europe in recent years.
Mild and affable, the president-elect inherits a country deep in debt and divided over how to integrate immigrants while preserving its national identity. Markets will closely watch his initial moves as president.
He narrowly defeated the hard-driving, attention-getting Nicolas Sarkozy, an America-friendly leader who led the country through its worst economic troubles since World War II but whose policies and personality proved too bitter for many voters to swallow.
"Austerity can no longer be inevitable!" Hollande declared in his victory speech after a surprising campaign that saw him transform from an unremarkable figure to an increasingly statesmanlike one. He will take office no later than May 16.
Speaking to exuberant crowds, Hollande portrayed himself as a vehicle for change across Europe.
"In all the capitals ... there are people who, thanks to us, are hoping, are looking to us, and want to finish with austerity," he told supporters early Monday at Paris' Place de la Bastille. "You are a movement lifting up everywhere in Europe, and perhaps the world."
Celebrations continued into the night on the iconic plaza of the French Revolution, with revelers waving French, European and labor union flags and climbing the base of its central column. Leftists were overjoyed to have one of their own in power for the first time since Socialist Francois Mitterrand was president from 1981 to 1995.
Sarkozy is the latest victim of a wave of voter anger over spending cuts in Europe that has ousted governments and leaders in the past couple of years.
In Greece, a parliamentary vote Sunday was seen as critical to the country's prospects for pulling out of a deep financial crisis felt in world markets. A state election in Germany and local elections in Italy were seen as tests of support for the national governments' policies.
In France, with 95 percent of the vote counted, official results showed Hollande with 51.6 percent of the vote compared with Sarkozy's 48.4 percent, the Interior Ministry said. The turnout was a strong 81 percent.
"Too many divisions, too many wounds, too many breakdowns and divides have separated our fellow citizens. This is over now," Hollande said in his victory speech, alluding to the divisive Sarkozy presidency. "The foremost duty of the president of the Republic is to unite ... in order to face the challenges that await us."
Those challenges are legion, and begin with Europe's debt crisis.
Hollande has said his first act after the election will be to write a letter to other European leaders calling for a renegotiation of a budget-trimming treaty aimed at bringing the continent's economies closer together. Hollande wants to allow for government-funded stimulus programs in hopes of restarting growth, arguing that debts will only get worse if Europe's economies don't start growing again.
Sarkozy and Germany's Angela Merkel spearheaded the cost-cutting treaty, and many have worried about potential conflict within the Franco-German "couple" that underpins Europe's post-war unity.
Merkel called Hollande to congratulate him on his victory. Hollande has said his first trip would be to Berlin.
President Barack Obama also offered congratulations and an invitation to the White House ahead of this month's summit of the Group of Eight leading economies at Camp David, Md., the White House said. After that, Hollande will attend a NATO summit in Chicago, where he will announce he is pulling French troops out of Afghanistan by the end of the year.
While some market players have worried about a Hollande presidency, Jeffrey Bergstrand, professor of finance at the University of Notre Dame, said it's a good thing that Hollande will push for more spending throughout Europe to stimulate the economy.
Europe is "going into a really serious and poor situation," Bergstrand said. Hollande "is going to become the speaker for those countries that want to do something about economic growth."
Sarkozy conceded defeat minutes after the polls closed, saying he had called Hollande to wish him "good luck" as the country's new leader.
"I bear responsibility. ... for the defeat," he said. "I committed myself totally, fully, but I didn't succeed in convincing a majority of the French. ... I didn't succeed in making the values we share win."
Sarkozy came to office on a wave of hope for change that critics say he squandered even before the economic crises hit. They saw his tax reforms as too friendly to the rich, his divorce in office and courtship of supermodel Carla Bruni as unseemly, and his sharp tongue as unfitting for his esteemed role.
French politicians now turn their attention to parliamentary elections next month. With what appears to be a thin victory margin, Hollande must more than ever count on a healthy majority in June legislative elections – the next challenge for Sarkozy's conservatives.
"The hour is one of mobilization. ... We must not give all the power to the left," said Jean-Francois Cope, leader of Sarkozy's UMP party.
The Socialists will have blanket control of the country if they get a majority in the decisive lower house of parliament. They already preside over the Senate and hold most regions and municipalities in France.
Hollande has pledged to tax the very rich at 75 percent of their income, an idea that proved wildly popular among the majority of people who don't make nearly that much. But the measure would bring in only a relatively small amount to the budget, and tax lawyers say France's taxes have always been high and unpredictable and that this may not be as much of a shock as it sounds.
Hollande wants to modify one of Sarkozy's key reforms, over the retirement age, to allow some people to retire at 60 instead of 62. He wants to hire more teachers and increase spending in a range of sectors, and ease France off its dependence on nuclear energy. He also favors legalizing euthanasia and gay marriage.
Sarkozy supporters call those proposals misguided.
"We're going to call France the new Greece," said Laetitia Barone, 19. "Hollande is now very dangerous."
Sarkozy had said he would quit politics if he lost, but was vague about his plans Sunday night.
"You can count on me to defend these ideas, convictions," he said, "but my place cannot be the same."
Sarkozy alienated many voters with a lunge to the right during the last two weeks of campaigning as he tried to lure backers of the far-right anti-EU and anti-immigration candidate Marine Le Pen, leader of the National Front party.
People of all ages and ethnicities celebrated Hollande's victory at the Bastille. Ghylaine Lambrecht, 60, who celebrated the 1981 victory of Mitterrand, was among them.
"I'm so happy. We had to put up with Sarko for 10 years," she said, referring to Sarkozy's time as interior and finance minister and five years as president. "In the last few years, the rich have been getting richer. Now long live France, an open, democratic France."
"It's magic!" proclaimed Violaine Chenais, 19. "I think Francois Hollande is not perfect, but it's clear France thinks it's time to give the left a chance. This means real hope for France. We're going to celebrate with drink and hopefully some dancing."
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Jamey Keaten in Tulle, France, and Elaine Ganley, Sarah DiLorenzo, Thomas Adamson, Greg Keller, Sylvie Corbet and Cecile Brisson in Paris contributed to this report.
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By ANGELA CHARLTON and ELAINE GANLEY 05/06/12 11:13 PM ET