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Hollande Faces Hurdle to Spending Cuts as Socialists Revolt

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President Francois Hollande
President Francois Hollande, whose popularity rating is at a record low, is bound by European rules to shrink the budget deficit. Photographer: Simon Dawson/Bloomberg

April 22 (Bloomberg) -- French President Francois Hollande’s biggest hurdle in pushing through a plan to cut public spending is emerging from within his own Socialist ranks.

After his newly appointed prime minister, Manuel Valls, presented details of a package of 50 billion euros ($69 billion) in cuts last week, lawmaker Laurent Baumel called it “intolerable,” saying he’s “a Socialist, not a Hollandist.” His colleague Cristian Paul deemed it “unacceptable,” while Senator Marie-Noelle Lienemann said it was an “economic aberration” based on the “dogma of lowering labor costs” and vowed to vote against the plan.

The reaction among a small yet vocal group of Socialist lawmakers increases the risk Hollande will have to water down his deficit-cutting plans, rely on opposition votes or -- more damaging yet -- face an election if a vote on the package fails. Socialist lawmakers will meet with Valls today to propose an alternative set of spending cuts.

“The group is unpredictable, malcontent and disoriented,” Gerard Grunberg, an analyst at Paris’s Institute of Political Sciences, said in an interview. “All that’s needed is a small piece of legislation that they really don’t like and they could revolt. A vote of no-confidence isn’t likely but I exclude nothing.”

Slim Majority

Hollande, whose popularity rating is at a record low, isn’t himself threatened since his mandate as president lasts until 2017. By contrast, his government depends on support in the National Assembly, where the Socialists have 290 seats against the 289 required for an absolute majority.

France is bound by European rules to shrink the budget deficit. With taxes at 46 percent of gross domestic product -- already the highest in the euro zone -- and a tax revolt last year, Hollande has no recourse other than to cut public spending.

In Italy, Prime Minister Matteo Renzi is trying to pull off a similar feat by cutting taxes to stimulate growth while meeting Commission-enforced budget targets. Both governments need to submit their plans to Brussels-based authorities this month.

Valls and Finance Minister Michel Sapin will present further details of the planned spending cuts to the cabinet tomorrow before taking it to Brussels under European Union rules. The blueprint is slated for a vote in the French parliament on April 29.

Beyond Means

Valls, who has been in office three weeks, has been trying to sell the plan to the French.

“For more than 30 years we’ve lived beyond our means,” Valls said on France 2 television on April 16. “I cannot accept it. The president cannot accept it.”

Valls has called for a freeze in social benefits, which he says will help the system save 11 billion euros, while a reduction in spending on health care will provide another 10 billion euros. Cuts in spending by local governments are estimated to save 11 billion euros, while state spending on administration is set to drop by 18 billion euros. Wages of state employees will be frozen until 2017.

“We’ll have real trouble to unite the Socialists behind this plan in its current state,” lawmaker Karin Berger said on France 3 television. Among the measures the group is proposing is to delay a tax cut for big business by one year, Berger said.

Valls Support

Valls, who was appointed prime minister after the Socialists suffered an unprecedented defeat in French municipal elections on March 23 and March 30, is popular with voters and lauded by economists for his record of defending free-market policies.

Still, unions representing state employees have called for a strike on May 15 against what they dub an “austerity” plan.

“This government is hard on the weak and weak on the strong,” Thierry Lepaon, the head of the CGT union, was quoted as saying by Agence France-Presse on April 16.

Socialist lawmaker Henri Emmanuelli questioned the EU’s motives in pushing the French government into such actions.

“It’s bitter medicine for the poor and lower middle classes,” he told AFP. “As for the justification of all these measures being the fear of financial markets, I’ve noticed that the interest rate on French debt has been falling since February and its spread with Germany has narrowed. So I have to ask if Brussels is pursuing budgetary and monetary objectives or purely political ones.”

Intellectually Lost

For all their complaints, many Socialists opposed to the plan may support it in the parliamentary vote since failing to do so would risk bringing down their own government. It could also damage the party before European Parliament elections in May, with polls already showing the Socialists lagging behind the opposition UMP party and Marine Le Pen’s National Front.

A no-confidence vote would hurt the party even more, according to Grunberg.

“Rationally, they shouldn’t do it,” he said. “But the Socialist Party has never revised its ideology. The party isn’t really prepared to govern in a globalized world. The left of the left is lost intellectually and politically.”

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

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net Vidya Root

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