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France

Economic woes mean no honeymoon for Hollande

Text by FRANCE 24

Latest update : 2012-05-15

A day after his triumph in the presidential election runoff François Hollande faces a lengthy to-do list as he prepares to take up his seat at the Elysée Palace. Top of the agenda is the unenviable task of trying to fix France’s ailing economy.

François Hollande may have defeated his rival Nicolas Sarkozy in Sunday’s dramatic runoff vote but a considerably tougher task now awaits him.

France faces record unemployment, stuttering growth and spiraling public debt, meaning Hollande will have little time to enjoy the taste of victory.

His triumph against Sarkozy has been compared to that of the previous Socialist Party president Francois Mitterrand in 1981. Then, Mitterrand also rose to power on a wave of socialist fervor to oust the incumbent president Valéry Giscard D’Estaing.

But according to some economists that is where the comparisons end.

“Unlike 1981, there will be no honeymoon period for François Hollande,” Michel Sapin, a former Socialist Party finance minister said on Monday, just a day after Hollande’s runoff victory.

“The state of the country’s economy is much worse than it was then,” he said.

At the start of his election campaign Hollande had vowed to “change the destiny of France” but a number of obstacles stand in the way of fulfilling this promise.

Growth versus austerity, Hollande versus Merkel

During his election campaign Hollande vowed to rewrite the European fiscal pact put together by ex-president Sarkozy and German Chancellor Angela Merkel.

He promised to shift the focus of the treaty towards growth measures. In his victory speech to the hordes of followers at the iconic Place de la Bastille on Sunday night Hollande attacked the austerity policies favoured by Merkel and Sarkozy.

The next day Merkel remained diplomatic, saying she would welcome the new president with “open arms” but poured cold water on any notion the fiscal treaty was up for discussion.

Hollande is expected to pay a visit to Berlin in the days following his inauguration on May 15.

Boosting industry

Hollande's desire to kickstart growth is particularly focused on France’s ailing industrial sector.

He plans to create an investment fund for small and medium sized enterprises which will be endowed with more than €6 billion.

To finance this program the new president has forecast a growth rate that will pass 1.5 percent by 2013. The IMF however is less optimistic, predicting growth will only be around 1 percent.

But Professor Tomasz Michalski, from HEC business school in Paris believes Hollande, whatever his ambitions are, may in fact find that his hands are tied.

“I do not see what levers he can really pull to stimulate growth in the short term,” he told FRANCE 24.

“My sense is that a lot of what is going to happen does not really depend on him but on external factors, like if there’s another eurozone crisis or Italy or Spain goes under. That would be a disaster.”

Spending on schools

One of Hollande’s more ambitious promises is to create 60,000 new jobs in education to boost school staff numbers after drastic cuts made under Sarkozy. The bill for doing so is estimated at around 2 billion euros.

With public spending in France already accounting for roughly 56 percent of the GDP and with Hollande insisting he will balance the books by 2017, he might find that 2 billion euros hard to come by.

He may want to create jobs but it is more likely his early months in office will coincide with some major job cuts among France’s biggest employers.

Air France could set the ball rolling when company chiefs meet in June to decide on the scale of the voluntary redundancy plan it aims to implement.

The future is also not looking so rosy at retail giant Carrefour, where the CEO Georges Plassat is due to meet trade unions in the coming months. Staff fear as many as 3,000 posts could be lost.

Taxing the rich

The French elite could be forgiven for being slightly concerned after Hollande’s win after he promised to hit those earning over €1million euros a year with a new 75 percent tax rate.

The proposal was applauded by the left but others feared a mass exodus of the country’s top earners.

Professor Michalski believes the tax would have little impact in the short term but could prove a ‘disaster’ further down the line.

But Michalski believes that the proposal may include enough carefully worded small print to exempt many of the country’s millionaires from having to pay the extra charge.

He also wants to introduce a salary cap on executives of public companies.

World of Finance

The reaction of the financial markets to Hollande’s victory was awaited with baited breath by many French investors.

Considering Hollande had previously declared the world of finance was his “real enemy” many feared a Socialist Party triumph would be greeted by a plunge in share prices.

Even Sarkozy stoked fears that France would turn into the next Greece if Hollande was elected.

But the sharp dip seen throughout European and Asian markets was attributed to the shock results of the Greek elections, where voters turned against mainstream parties and their plans for austerity.

But some financiers believe those fears could be misplaced, in the short term at least.

“The markets will not attack France just because François Hollande is a socialist,” Jacob Funk Kirkegaard, from the Peterson Institute for International Economics, told the New York Times.

“But there is a risk that if Hollande does not act early on, France will become the next sick man of Europe,” he added, somewhat ominously for the president-elect.

Date created : 2012-05-07

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