French Socialists Show Split as Hollande Pushes Euro Treaty

French President Francois Hollande is seeking lawmakers’ support for Europe’s fiscal treaty as differences emerge over economic policy within his Socialist Party and put the region’s crisis resolution at risk.

The budget pact, which Hollande agreed to in June as part of a European package of measures intended to put an end to the three-year euro-area debt crisis, will be put before parliament on Oct. 2, Prime Minister Jean-Marc Ayrault said today in Paris. It is opposed by Socialist lawmakers including Marie-Noelle Lienemann and Jerome Guedj, who say it will impose austerity that they campaigned against in the May presidential elections.

“Our budget discipline is not imposed by the treaty,” Ayrault said today after the French cabinet approved the treaty. “It’s a question of credibility. My goal is to convince as many members of parliament as possible to do their duty to give France a strong voice so that it’s listened to. You can’t call for more European solidarity and not ratify the treaty.”

Support for the treaty from legislators belonging to former President Nicolas Sarkozy’s party may help enshrine it into French law. Still, the split within Hollande’s party reflects the growing political challenge he faces in reviving Europe’s second-largest economy and retaining the confidence of both investors and his European partners.

“The fiscal treaty ratification process is going to reveal fault lines in France,” said Antonio Barroso, an analyst at Eurasia Group in London. “It’s going to create lot of noise and generate issues that have been avoided in France for 25 years.”

German Demands

France, which hasn’t balanced its budget since 1974, has promised to cut its deficit to 4.5 percent of gross domestic product this year and 3 percent next year from 5.2 percent last year, before eliminating the shortfall in 2017. Hollande said this month that his government is planning 30 billion euros ($39 billion) in tax increases and spending cuts to meet targets.

The fiscal pact, demanded by Germany in return for more support for euro-area governments struggling to get financing, requires the bloc’s 17 countries to limit their deficits to 0.5 percent of GDP or less when the economy is growing. The pact takes effect once 12 euro-area countries have ratified it.

Ayrault said in a radio interview today that the pact has allowed the European Central Bank to offer more help to end the region’s debt crisis.

“Thanks to this, the ECB is ready to intervene, which is a major change,” he said on RTL radio. By voting for this treaty, lawmakers will “strengthen the hand of the president” in European negotiations, he added.

Some French Socialists say the policy risks pushing the country into recession.

Waning Popularity

“It’s an austerity treaty,” Lienemann, a Socialist senator who intends to vote against the pact, said Sept. 5. “Everything in the current economic circumstances shows that blocking public spending is a strategy for long-term austerity and to put us into recession.”

Guedj, a Socialist member of the National Assembly agrees. “We’d be curbing growth if we vote for this,” Guedj said on Europe 1 radio. “We won’t be able to do an economic stimulus that is sometimes necessary to revive growth.”

Their anti-austerity sentiments have echoed across the region, with growing opposition to the German-led push in Greece, Spain and the Netherlands.

The challenge is an added problem for Hollande at a time when he’s readying tax increases, spending cuts and is trying to convince unions to accept increased worker flexibility.

The agenda, along with a stalled economy and unemployment at a 13-year high, has caused Hollande’s popularity to wane since winning office in May.

Only 46 percent of voters now have a positive opinion of Hollande, down 15 points since the end of June and the first time a majority holds such a view, according to a BVA poll of 1,044 adults published this week.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net; James Hertling at jhertling@bloomberg.net

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