Hollande Seen Bowing to Crisis in Socialists’ Balancing Act

France's Socialist Presidential Candidate Francois Hollande
Francois Hollande, France's Socialist presidential candidate. Photographer: Balint Porneczi/Bloomberg

Francois Hollande helped President Francois Mitterrand nationalize companies in the 1980s. A decade later, he helped Prime Minister Lionel Jospin sell them.

Faced with leading the second-biggest euro economy amid the debt-crisis crossfire, the Socialist presidential candidate may have to govern as the 1990s model, says Steven Major, head of fixed-income research at HSBC Holdings Plc in London.

“The pressure to clarify the position after a change in government will be high and it will be immediate,” said London-based Major. Investors are “looking through the election and reasoning that the government will fall into line.”

The prospect of Socialists dominating policy making for the first time since 1993 -- holding both the presidency and the prime minister’s post -- has driven up French borrowing costs compared to Germany. The difference has risen to 131 basis points from 90 basis points on March 1.

The challenges for the next president include creating jobs and increasing competitiveness while keeping the region’s financial woes at bay. France’s debt is approaching 90 percent of gross domestic product and jobless claims are at a 12-year high. Hollande is already squabbling with Germany and clashing with European Central Bank President Mario Draghi.

The challenger led President Nicolas Sarkozy 54 percent to 46 percent on the eve of their only debate before the May 6 vote, an Ifop poll showed today. Ifop interviewed 1,876 registered voters between April 26 and 29 and provided no margin of error.

On the campaign trail, Hollande is aiming to spur turnout and avoid divisions among partisans. In Limoges, known as the birthplace of French socialism, on April 27, he praised the region’s “Communist culture” and the contribution of anti-capitalist Jean-Luc Melenchon, who scored 11 percent in the first round.


“There is a tension between a political stance in a campaign and what policy gets done when in power,” Gilles Moec, co-chief European economist at Deutsche Bank AG in London, said in an April 16 interview. The Socialists “are maintaining an ideological stance, but in practice they are getting much more moderate.”

Hollande’s balancing act was illustrated April 25. He began the day with a radio interview promising to boost the minimum wage and to block “a parade of firings.” At an afternoon press conference he said the labor market needs to be more “fluid” to spur hiring and the deficit must be cut.

The internal debate is represented by a pair of think tanks who support him: Les Gracques, who seek to appeal to the center, and the more traditionally socialist Terra Nova, run by Olivier Ferrand, who has worked for politicians including Pierre Moscovici, Hollande’s campaign chief and one of the aides cited as a possible finance or prime minister.

Minister Picks

Hollande said April 26 that he’ll chose as prime minister a “uniter, who knows lawmakers well, knows the Socialist Party well and knows me well.” That’s a description that fits Jean-Marc Ayrault, the German-speaking deputy head of the Socialist group at the National Assembly and his point man for negotiating with Germany’s Social Democrats.

Other possibilities include Martine Aubry, author of the 35-hour work week law, and Manuel Valls, a one-time supporter of Dominique Strauss-Kahn.

Among Hollande’s economic advisers and candidates for cabinet posts are former Finance Minister Michel Sapin, and Jerome Cahuzac, the head of the National Assembly finance committee.

Economic Aides

Hollande’s campaign also includes Laurent Fabius, a former prime minister; Grenoble Mayor Michel Destot and Andre Martinez, a former Accor SA executive, who both advise him on small and big companies, and Karine Berger, formerly chief economist at insurer Euler Hermes SA.

His informal advisers comprise Emmanuel Macron, a banker at Rothschild & Cie.; Harvard University economics professor Philippe Aghion; World Trade Organization chief Pascal Lamy, and Jean-Pierre Jouyet, head of France’s market regulator.

While some advisers have pushed for looser labor rules, others have advocated an expansion of the government payroll as a way of cutting the highest level of joblessness in 12 years. Hollande’s platform doesn’t identify competitiveness as a goal.

In a France 2 television interview on April 26, Hollande declined to say how he would cut labor costs to increase competitiveness against Germany. He has pledged to raise the minimum wage. Economists note that the Socialist platform does include promises to bolster output, rather than simply ones that would bolster demand.

“The economic diagnosis is totally different from the one the Socialists made in 1981 and even from 1997,” said Jean Pisani-Ferry, head of the Brussels-based Bruegel Institute. They’re not planning to drive “growth with demand-side policies. It’s a definite change of era.”

State Stakes

In the 1980s under Mitterrand, for whom Hollande worked, France nationalized the biggest banks and companies including Pechiney and Suez. By the 1990s, needing to shore up finances to enter the euro, Jospin sold stakes in such operations as Air France and France Telecom SA. He also introduced the 35-hour work week. By then, Hollande was Socialist Party chief.

In Hollande’s 2012 platform, state spending would rise by 20 billion euros ($26.3 billion) over the five-year term and the retirement age for some would be pushed back to 60 from 62.

Tax increases and eliminating loopholes would seek to raise 29 billion euros. The budget plan aims to eliminate the deficit in 2017, one year later than under Sarkozy’s plan, with a 3 percent of gross domestic product deficit target for 2013.

Spending Limits

“We can no longer do a Keynesian policy to resume to growth, the states don’t have the budget for that,” Sapin said in an interview. “It’s not by doing economic stimulus or banking on demand. It’s about investing in projects that will bring mid and long-term growth.”

Sarkozy says a Hollande presidency would risk embroiling France deeper in the euro debt crisis. “I don’t want France to suffer the fate of Greece and Spain, and that’s why I’m running,” Sarkozy said on April 12.

To Marine Le Pen, leader of the anti-euro National Front, the two candidates are flip sides of the same coin. “The only question is who will better impose the diktats of the troika of the European Commission, the ECB and IMF,” she told a rally today in Paris. The French are being asked to choose a “finance sub-governor from Brussels, obliged to give regular reports to the Germany of Angela Merkel.”

The French parliament would vote on Hollande’s fiscal proposals that would include higher taxes for big companies and cuts for small and medium-sized businesses. It would also vote on a 75 percent levy on incomes above 1 million euros a year and special taxes on banks and oil companies, according to his plan, which didn’t provide further details.

“I don’t believe for one second there will be a market attack on France May 7,” Matthieu Pigasse, vice chairman of Lazard Ltd. and a Hollande supporter, told reporters April 30. “The left is always better in power than in opposition.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE