Hollande Faces First Challenge From Base in Union Protest

Thousands of French workers demonstrated today across the country in what is President Francois Hollande’s first public challenge from his base.

Five months after he was elected, the Socialist president confronts many of the voters who put him into office as unions and some lawmakers from his own party take him to task over Europe’s deficit-trimming fiscal pact and pledges to make French labor more flexible. Protestors marched in eight French cities, including Paris, Marseille and Bordeaux, after CGT, France’s biggest union, called for strikes and demonstrations.

“This is a government that was elected largely thanks to votes of workers,” Pascal Debay, a CGT director, said in an interview. “We’re witnessing the destruction of jobs and the wrecking of French industry. That’s why we’re mobilizing. The choices the government makes in coming weeks will be followed very closely.”

The confrontations show how Hollande is increasingly caught between the realities of governing during a debt crisis and the demands of his core supporters. Hollande’s approval rating fell 9 points in September to 41 percent, according to a TNS-Sofres poll published last week. That’s a record low for a French president at this point in his term and down from 55 percent when Hollande won office in May.

“Hollande’s looking at a very difficult few months,” said Antonio Barroso, an analyst at Eurasia Group in London. The Socialist “government is starting to see how hard it is.”

French Credibility

As companies from PSA Peugeot Citroen, Air France and Carrefour SA (CA) fire thousands of workers, the protests today are being called to “defend jobs and industry,” union officials said. Ports in Le Havre and Marseille were disrupted, while Paris transport remained unaffected, Agence France-Presse said.

With the French economy in the midst of five quarters without growth, according to national statistics office Insee, and unemployment at a 13-year high, Hollande has little room to maneuver.

Having won election on a campaign against “austerity” and then gaining support from German Chancellor Angela Merkel for increased activism by the European Central Bank, Hollande now has to make good on France’s commitments to trim its deficit and sign up to tougher budget rules for the medium term.

At stake are France’s credibility and its ability to sell debt at some of the lowest borrowing costs the country has paid.

Still, in the National Assembly in Paris today, some Socialist lawmakers may have voted against the fiscal treaty. Lawmakers including Jerome Guedj and Pascal Cherki had said they planned to vote against it because the belt tightening threatens to push the country into recession.

Markets’ Mercy

“When you ask too much budgetary effort of a country you trigger a spiral of lower gross domestic product, then missed targets and a negative market reaction,” Cherki said in a Le Figaro newspaper webcast Oct. 4. “There’s never just one policy option,” which is why “I’m fighting against the treaty.”

The vote passed today with 477 in favor and 70 against, thanks to the support of former President Nicolas Sarkozy’s UMP party.

Hollande’s political troubles may be far from over. He and his ministers have tried to sell the debt-and-deficit-cutting exercise as a question of regaining sovereign control. The government has pledged to trim the deficit to 3 percent of GDP next year from 4.5 percent targeted this year.

“Debt is the enemy of public services,” Finance Minister Pierre Moscovici said yesterday in Luxembourg. “We have too many examples of countries that are at the mercy of the markets, which’ve paid the price in terms of very high interest rates.”

Balancing Act

French borrowing costs have held near historic lows since Hollande took power in May. The yield on French 10-year debt dropped to a record of 2 percent on Aug. 3 and France also sold shorter-term notes at negative yields for the first time in July. French 10-year bonds yielded 2.25 percent today.

Even so, investor pressure isn’t far away as Europe’s debt crisis moves into its fourth year. The premium France pays over Germany to borrow for 10 years has increased by almost 25 basis points since Sept. 14, when it reached a one-year low of 55 basis points.

“Hollande’s balancing act is being put to the test,” said Nicholas Spiro of Spiro Sovereign Strategy in London. “In his effort to please everyone, he’s increasingly in danger of satisfying no one.”

Hollande has already had to back down over plans to increase capital gains tax on entrepreneurs selling businesses to as much as 60 percent, instead of 34.5 percent currently. The higher levy was part of 20 billion euros in tax increases announced Sept. 28 in the 2013 budget.

Tough Times

Bigger tests are set to come in the weeks and months ahead as Hollande seeks to convince unions of the need to lower payroll taxes and make labor rules more flexible.

Business leaders say French labor costs need to be brought down to boost competitiveness and preserve or create jobs. PSA Peugeot Citroen (UG) Chief Executive Officer Philippe Varin said yesterday that the country’s largest carmaker’s 4 billion euros in labor costs need to be cut by 5 percent to 10 percent.

“I don’t see why the workers should have to give more,” CGT president Bernard Thibault said yesterday on France Inter radio. “It’s workers who made possible the change in government, not business. This is about having a government that listens to its electorate.”

As unions and businesses prepare to lock horns, Hollande may find himself caught in the middle.

“It’s going to be very difficult for Hollande,” said Emmanuel Rivier, a pollster at TNS-Sofres in Paris. “As long as unemployment remains high, Hollande’s popularity will suffer. A Socialist government is never going to satisfy its voters by making good on promises to cut the deficit.”

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net

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