French President Francois Hollande, confronting a stalled economy and sliding popularity, rejected calls for “shock” measures and asked to be judged on growth and jobs at the end of his five-year mandate.
“The question that matters in my eyes isn’t the state of opinion, it’s the state of France in five years,” Hollande said yesterday in a 2 ½-hour press conference in Paris, the first of such semi-annual gatherings he has promised. “I want to be judged, when the time comes, on employment and growth.”
Six months after gaining office, the Socialist president is struggling to retain support from those who voted for him while convincing critics from Berlin to Washington that he’ll modernize Europe’s second-largest economy amid the region’s three-year-old sovereign debt crisis.
With unemployment at a 13-year high, a record trade deficit and at least three quarters without gross domestic product growth, a majority of French voters are dissatisfied with Hollande’s performance as president, according to an Ifop poll for Paris Match magazine published yesterday.
At the same time, allies of German Chancellor Angela Merkel have expressed concern that Hollande isn’t moving quickly enough to bolster French competitiveness and the International Monetary Fund in Washington this month urged Hollande to embark on a “vigorous” revamp of the economy, saying its rigid labor rules and high costs are a “major challenge” to economic stability.
France is Germany’s closest partner in Europe and it “would be good if the Socialists there would courageously initiate real structural reforms now,” Volker Kauder, head of the parliamentary group of Merkel’s Christian Union bloc said, according to a Spiegel magazine report.
Germany would like Hollande to “move a little more” toward Merkel, Spiegel quoted Kauder as saying.
Reports of German concern about Hollande’s policies prompted German Finance Minister Wolfgang Schaeuble to warn yesterday against calling France the “sick man” of Europe, saying the governments of the continent’s two largest economies shouldn’t criticize each other. Hollande picked up that refrain at his press conference.
“We speak frankly with the chancellor,” he said. “We don’t give each other lessons, lessons in history. It’s true we have to show we’re serious on competitiveness. Germany needs to show solidarity; it’s not easy for a country that’s made so much effort in the past decade.”
Sticking to his election promises, Hollande has cut the retirement age for some workers, imposed a tax of 75 percent on earnings over 1 million euros ($1.27 million) and lifted the minimum wage. He has also pressed Merkel to ease her push for austerity to fight Europe’s debt crisis.
More recently, Hollande has set out a plan to give a tax credit to companies to ease labor costs and raise France’s two highest sales tax rates starting in January 2014.
He has asked unions and business leaders to come up with a plan to make labor rules more flexible by the end of this year.
“I’ve been told by some we need a shock but economies don’t like shocks,” Hollande said. “What is needed is visibility and stability, not improvisation.”
Hollande said yesterday that he intends to reduce public spending by 12 billion euros a year over his mandate, for a total reduction of 60 billion euros by 2017.
“Public spending is now 57 percent of national output,” Hollande said. “This may not mean much to the average French person. It was 52 percent five years ago. Are we living better for it? No. So we need to reform the state.”
So far, bond investors haven’t shared German concern about France. The yield on France’s benchmark 10-year debt dropped about 0.05 basis points yesterday to 2.055 percent. It hit an intraday record low of 2.002 percent on Aug. 3.
The spread between French and German government 10-year debt is about 72 basis points, down from more than 200 basis points a year ago and 143 basis points when Hollande took office in mid-May.
Hollande yesterday jumped on that as evidence of the credibility of his policies.
“We’ve reduced the spreads with Germany by almost 40 percent,” he said, pointing out that France has even sold short-term debt at negative yields. “Those asking what our position is with Germany,” should note that, he said.