Hollande ‘affair’ clouds key policy questions on French economy
The timing could hardly have been worse.
Headlines alleging that François Hollande was having a secret affair with a film actress erupted just days before the French president is to make one of the most anticipated public appearances of his struggling, 20-month old presidency.
In a turbulent political atmosphere already roiled by government efforts to silence the anti-Semitic outbursts of the comic Dieudonné, Mr Hollande was aiming to use a press conference on Tuesday to persuade a sceptical French public that he is capable of turning around the sluggish French economy.
Now awkward questions about his private life threaten to overshadow an occasion that will also be closely watched by France’s European partners, anxious that the eurozone’s second-biggest economy should not become a drag on the continent’s post-crisis recovery.
Mr Hollande has raised expectations that he will use the press conference to detail how he intends to accelerate the revival of an economy whose rate of recovery is lagging Germany, the UK and several other European countries.
Before the Dieudonné and love affair stories blew up, a big talking point in France had been the president’s New Year address to the nation that appeared to signal a shift towards the kind of market-oriented policies long demanded by the EU.
Mr Hollande stressed the need to cut France’s huge public spending bill, reduce its big tax burden and ease the heavy costs on business stemming from the country’s high social charges levied on employment.
In unusual language for a French socialist leader, Mr Hollande spoke of “excesses” and “abuses” in the social welfare system and said he was “certain that we can do more by spending less”.
The address prompted a wave of commentary suggesting Mr Hollande had come out as a “social liberal” – in French terms, a market reformist.
An angry Pierre Laurent, leader of the Communist party, said Mr Hollande had “turned his back on those that hoped they had elected the left to power”.
Bruno Cavalier, chief economist at Oddo Securities in Paris, wrote: “Under pressure from economic constraints and with his ratings at an all-time low, François Hollande has resolved to adopt a policy that prioritises supply. The intention is laudable.”
What Mr Cavalier and others will look for on Tuesday are details of what Mr Hollande proposes by his promise of a “responsibility pact” with business, particularly how far he is prepared to go in cutting labour costs for companies, currently returning record low profit margins as France continues to suffer weak international competitiveness.
Attention will also focus on whether Mr Hollande spells out plans for further spending and tax cuts. Since he took office, the tax burden has sharply increased as the government has relied mainly on higher taxes to bring down the budget deficit.
The government has already pledged to stabilise taxes from 2015 and shift the emphasis of debt reduction to spending cuts, with a target of €50bn, equivalent to about 2.5 per cent of gross domestic product, over the next three years. But with strong resistance on the left to welfare cuts, there is scepticism that Mr Hollande will go any further.
“I hope this U-turn is real, but I fear it is just smoke and mirrors,” says Philippe Villin, an independent adviser to many top French companies and a trenchant critic of the government.
He warns business against being lured into a “trap” of complicity with government policy. “The truth is, since the left came to power, there has been an accumulation of new charges and constraints and a terrible increase in the taxation of companies and individuals.”
The stakes are certainly high. The government has angrily dismissed recent claims that France has become “the sick man” of Europe. The economy was never as hard hit by the crisis as others, including the UK. It looks set to produce about 1 per cent growth in 2014, with unemployment likely to peak at just short of 11 per cent in the course of the year, below the eurozone average.
But business confidence and investment remain low, the trade deficit high and the Cour des Comptes, the national auditor, warned this month that France’s high level of public debt remains “in the danger zone” – susceptible to an increase in interest rates.
The onus is firmly on Mr Hollande to give a signal that his government can accelerate the recovery. But on Tuesday, he will first have to deal with the unwelcome issue of his love life.