Jan. 13 (Bloomberg) -- French President Francois Hollande may be changing his political spots.
The Socialist leader’s plans to cut costs for companies prompted headlines in French newspapers last week questioning whether Hollande, who once famously said finance was his “greatest adversary,” is turning into a pro-business reformer. Le Monde said “Socialist or Freemarketeer: Inquiry Into the Hollande Doctrine,” Le Journal du Dimanche pondered on the “Reasons for the About-Face,” and Le Figaro declared “The President is Turning Against the Current.”
Faced with a sluggish economy that has barely grown in two years and unemployment at a 16-year high, Hollande floated the possibility of lower taxes and cuts in public spending in his Dec. 31 speech to the nation. Business leaders, who’ve had to deal with mounting levies and zigzagging polices, are saying: show me. They want to see concrete measures from Hollande when he holds one of his twice-yearly press conferences tomorrow.
“Recognizing that companies have a major role to play in terms of economic development and job creation is a step in the right direction,” Jean-Pierre Clamadieu, chief executive of chemicals maker Solvay, said last week. “Yet for now these are just words. We need some substance.”
The European Commission says Hollande’s priority should be to keep down taxes and labor costs in a country where public spending amounts to 57 percent of gross domestic product -- the highest in the euro area -- and taxes are at 46 percent.
“In France so far the consolidation of public finances has been done largely by tax increases in relative terms more than expenditure cuts and this is clearly hurting growth,” European Union Economic Affairs Commissioner Olli Rehn said Dec. 3.
France has lagged behind countries such as Spain and Ireland, which bore the brunt of the euro sovereign debt crisis, in efforts to boost competitiveness, economists say. Berenberg Bank Chief Economist Holger Schmieding ranked France 14th among European countries in terms of “adjustment progress” in a report for the Lisbon Council published last month. Ireland ranked second and Spain ranked third.
In his national New Year’s eve address, Hollande said he’s ready to offer businesses lower labor charges and less regulation in exchange for more hiring. Hollande, who may face questions about his alleged affair with actress Julie Gayet tomorrow, is likely to keep the press conference focused on his plans for the economy.
Medef, the country’s main business lobby, has welcomed Hollande’s plans to cut the cost of doing business in France. Businesses could create 1 million jobs over 5 years by cutting taxes and social charges by 100 billion euros ($137 billion), Medef President Pierre Gattaz said today on Europe 1 radio. Gattaz shrugged off questions about Hollande and Gayet.
“That is a totally private affair,” he said. “There’s a president and a government and he made a very interesting announcement on Dec. 31. I’m concentrating on what matters: the economy of our country.”
Still, some economists are skeptical Hollande will act.
He has made similar promises in the past -- pledging, for instance, an end to tax increases on July 14 only to lift charges by 3 billion euros when the budget was introduced two months later. The increase in French taxes by about 70 billion euros in three years provoked tax revolts by November and pushed Hollande’s popularity to record lows.
The president has “everything to gain by attempting to revitalize the French economy,” said Bruno Cavalier, an economist at Oddo Securities in Paris. “The intention is laudable. It will be judged on the outcome. It is better to judge a politician on his actions rather than his words.”
Hollande’s approval rating fell to 23 percent in December, about a third of the level when he took office, before recovering 3 points to 26 percent, according to an Ifop poll published Jan. 7.
“Hollande has a credibility problem that stems” from the gap between his “discourse and his actions,” said Paul Vallet, a professor of international relations at Sciences-Po in Paris. “He has his ideas and concepts that do place him at the right of his political party but he has never fought to impose these ideas.”
Hollande -- a former Socialist Party general secretary -- has tried to avoid antagonizing his base. His recent business-friendly noises have already drawn his allies’ wrath.
“These choices are different from the ones presented during the election campaign,” Delphine Batho, the former ecology minister who was fired from his government, said in an interview in JDD. “There’s no longer a social project. Cutting the state’s spending is a policy from a different era. It goes against the new cycle opened by the crisis in 2008.”
Still, France’s economic state might force Hollande’s hand.
The French finance ministry predicts GDP growth of about 1 percent this year and Hollande said Dec. 31 that countering unemployment remains his top priority.
As he approaches the half-way point of his five-year mandate, the urgency of showing progress in terms of both economy and politics is growing.
“Hollande needs to re-establish some authority,” said David S. Bell, a professor of government at Leeds University. “He needs to boost the economy above all.”
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