For just this evening, this one day, allow us to express our emotions. Nothing will be easy, simple or free. Yet, one can sense, however fleetingly, a sense of hope, of fraternity in the air. Greater justice for the downtrodden, less arrogance in the elite.
We are not asking for much, so please do not deny us this hope, which justifies ten years of patience, wrote the columnist Laurent Joffrin in the leftwing weakly, Le Nouvel Observateur.
The Socialists had not won a national election since 1997, and a presidential poll since 1988...
But last Sunday, May 6, François Hollande, the Socialist party candidate, defeated the incumbent president Nicolas Sarkozy (51.6% to 48.4%) to become only the second Socialist president in the history of the Vth Republic.
The financial meltdown of 2008, the economic, debt, Greek bankruptcy and Euro crises that followed greatly facilitated Mr. Holland’s task in winning the presidency. Mr. Sarkozy however, was also responsible for his defeat, which he readily admitted in his concession speech on Sunday night.
Although widely admired for his limitless energy, determination, drive, and ability to handle international crises deftly, Mr. Sarkozy’s abrasive personality and aggressive style alienated may, too many in France.
Sarkozy sought to tackle all the major issues simultaneously. Micromanaging government business, he hardly left any breathing space to his own ministers.
One of the latter once quipped that Sarkozy was the first politician he had ever met who wanted to be elected president so he could be prime minister…
In addition, his determination to modernize the presidential function (he rejected the traditional model of President as the wise, aloof arbiter above the fray), his unabashed admiration for those who succeeded, and willingness to socialize with them openly, antagonized the French who still view money and success with suspicion.
He was lambasted and caricatured relentlessly as the president of the rich who wore 70,000 Euros watches and spent weekends on the yachts of millionaires…
Hence, the French condemned his hyper presidency as divisive both socially and politically.
As a result, Mr. Hollande, affable, friendly and wily, campaigned on the promise that, if elected, he would be a normal president.
Mr. Holland will officially become president next Tuesday. It will then become his responsibility to deal with the budget, debt and Euro crises that are threatening French and European prosperity.
What will he do?
During the campaign, he promised that he would put an end to austerity.
I don’t want a Europe of austerity, where nations are forced to their knees, he added, obviously with the plight of the Greeks in mind.
In order to increase state revenue, he pledged to establish a 75% tax rate for top earners. Yet, he also promised to increase the minimum wage, as well as the back-to-school-benefit allocated to low income families each September.
He also plans to hire 60,000 additional schoolteachers (at a cost of 2 billion Euros) and restore the retirement age to 60 (from the current 62, following the 2010 Sarkozy reform) for those who joined the labor force at age 18.
At the same time however, he has vowed to pursue a strict and disciplined budgetary policy, in order to reach a balanced budget by 2017, the end of his term. Incidentally, France has not had a balanced budget since 1975...
Yet, Mr. Hollande believes that austerity alone cannot bring about the coveted policy goals of balanced budgets and reduced debt levels.
Only economic growth can allow such objectives to be reached, he argues.
Hence, on the day of his inauguration, Tuesday May 15, he plans to fly to Berlin and meet with Angela Merkel, the German chancellor (who had supported Sarkozy during the French presidential campaign), in order to renegotiate the European Union Fiscal Pact, devised by Merkel and Sarkozy last fall, and that was signed by 25 of the 27 members of the European Union. Only Britain and the Czech Republic declined to do so.
The pact institutionalizes budgetary discipline. Each nation agreed to incorporate into its constitution the Golden Rule, which compels the government to introduce only balanced budgets, hence putting an end to deficit financing, a practice long abused in Europe and that has led to its current predicament.
During his campaign, Mr. Hollande, who is opposed to the Golden Rule, demanded that the pact be renegotiated. Germany resisted such calls, leading Mr. Hollande to insist that Germany should not decide for all of Europe.
Mrs. Merkel however, has refused to budge on the issue. The fiscal pact is not negotiable, she reminded Mr. Hollande this week.
The Germans fear that Mr. Hollande’s Growth pact, which he wants to incorporate in the initial agreement, will lead Europe back to square one: more deficits and debt.
Germany is not here to finance French election promises, Volker Kauder, the parliamentary leader of Merkel’s party, the Christian Democrats, emphasized.
Merkel believes that economic growth can and should be stimulated by structural reforms such as the liberalization of the labor market; increasing the retirement age and eliminating barriers to trade, for instance.
Many outside France believe that its economy would greatly benefit from the implementation of such policies, but the newly elected French president and his supporters have long been adamantly against such measures…
Since Merkel will not budge on the fiscal pact, Hollande may propose an addendum instead, containing the following more consensual measures: a more prominent role for the European Investment Bank; the issuing of European bonds to finance infrastructure projects in Europe; a tax on financial transactions to raise revenue and the more efficient utilization of European structural funds designed to help Europe’s poorer regions.
Though such measures could be helpful, their actual economic impact could take years to measure.
They should prove more palatable to Mrs. Merkel however, provided the original fiscal pact remains intact.
France and Mr. Hollande are thus in a very precarious position.
According to figures released by the European Commission on Friday, the French economy is expected to grow by 1.3% next year (and not the 1.7% predicted by Mr. Hollande and on which his economic program is based).
In addition, the budget deficit should reach 4.2% (if no additional measures are taken) and not 3% as the outgoing government had planned, an objective Mr. Hollande has pledged to pursue.
Before the revised predictions issued by the Commission, France needed to cut 20 billion Euros in spending per year simply to reach its deficit targets…
As a result, significant cuts in France’s budget are inevitable…
Our economy is weak even though we have yet to experience rigorous budgetary discipline. This is very worrisome, Mathieu Plane, an economist, told the French business weekly L’Expansion.
Yet steep budget cuts will necessarily lead to higher unemployment, thus higher budget deficits, and a lower growth rate, if not outright recession. The Greek debacle is a case in point.
Such plans are anathema to a French socialist…
Moreover, Hollande has not outlined any measures to reduce the budget, on the contrary.
He plans to limit its growth to 1% per year, albeit lower than the inflation rate.
He never explained however, what cuts he would consider making, if any, in the state budget, and thus whom they would affect…
Mr. Hollande is keenly aware that France’s budget deficit is deteriorating, and he has asked France’s Cour des Comptes, its public-accounts office, to evaluate the extent of the deficit. Its report is due late June, conveniently after France’s parliamentary elections. President-elect Hollande hopes to win a comfortable majority in the National Assembly, one that will support his economic program.
Hence, no potentially unpopular measures will be taken before July.
Mr. Hollande has said that he will respond appropriately once he has studied the report.
What is clear is the following: he cannot reach his numbers (deficit reduction targets) by tax increases alone. He will have to do more to cut spending, Guillaume Menuet, a Citigroup economist, told The Economist.
France needs to borrow 180 billion Euros in 2012, and 240 in 2013.
If Hollande’s economic program is deemed not sufficiently robust and credible by the financial markets to tackle the budget deficit and debt issues, then yields on France’s sovereign bonds will rise, thereby deepening France’s budget woes.
Mr. Hollande has thus very little room to maneuver. He needs to confront France’s budget deficit and growing debt (90% of GDP by the end of 2012) head on, and as early as Tuesday.
The corrective measures that need to be taken, significant budget cuts; tax increases, and not only for millionaires, as well as structural reforms will no doubt alienate many of those who voted for Hollande and against Sarkozy and the recession last week, and who took his campaign slogan, le changement c’est maintenant (change begins now), seriously.
The German newspaper Die Welt made the following assessment of France’s predicament earlier this week.
The saying that nothing happens in Europe without France is accurate. But what can be achieved with a France that psychologically represses the consequences of globalization, toys with the idea of a fundamentally different monetary policy and considers austerity to be a Teutonic vice?
This is the France that Hollande has inherited, and it will be his responsibility to provide an answer to that pertinent question.
Is he up to the task?
Does he even want to reconcile France with globalization and its demands?
If so, will he do what it takes to revitalize the French economy, and render it more competitive, even if that entails betraying his leftwing supporters for whom globalization is not an opportunity, but an abomination?
Will he, instead, tread the easier path and simply tinker with a social model that is bankrupt, but can probably be propped up a few more years, until the next Presidential election?
In 1996, Alain Juppé, Sarkozy’s foreign minister, but then Jacques Chirac’s prime minister said the following:
The French are a conservative and reticent people, who cling to their privileges and prejudices, and are paralyzed by their past.
The assessment, blunt and not particularly flattering, may be even more accurate fifteen years later, four years into the gravest economic crisis since the Great Depression.
There is only one possible remedy in such a context, it is called leadership, and there is no such thing as leadership without courage.
If Hollande is to succeed and steer France away from the clutches of bankruptcy, he will have to ignore the program on which he ran; unequivocally tell the country the state in which it finds itself; what must be done and done now to resurrect its economy and the sacrifices that endeavor will entail.
That is what a leader would do, whatever the potential political and electoral consequences may be.
In the end, Hollande will be judged on what personal sacrifices he was willing to make in order to prevent his country form following Greece and now Spain into the abyss…
(the phograph above is by Thomas Samson/AFP PHOTO)
