Hollande Presses French to Embrace Social Revamp to Spur Growth

President Francois Hollande pressed the French to accept reduced pension and welfare benefits as part of a national effort to revive a moribund economy and stem a rise in unemployment that has caused his popularity to slump.

In a national television interview last night that lasted more than an hour, Hollande promised to revise a 75 percent levy on salaries over 1 million euros and avoid any new tax increases next year while reducing state spending. The government will cut red tape for businesses and protect the defense budget, he said.

“We can’t wait for growth, we must go find it,” Hollande said. “I don’t want to just restore the public finances to order. I need to show we can do better.”

The changes to jobless benefits and a proposed cut in payouts to families would be unprecedented in France, while a plan to lengthen the number of work years would extend moves begun by Hollande’s predecessor, Nicolas Sarkozy. The measures underline the challenges the Socialist president faces as he seeks to balance demands of voters with pressure from bond investors and France’s European partners to overhaul the region’s second-largest economy.

French growth has been stalled for two years and national statistics office Insee said last week that the stagnation would extend through June. Jobless claims have risen for 22 straight months as companies ranging from PSA Peugeot Citroen SA to Alcatel Lucent slash tens of thousands of jobs. The number of people looking for work is just shy of the record 3.196 million reached in January 1997.

Borrowing Costs

The premium France pays over Germany to borrow for 10 years has crept up in recent weeks, reaching 74 basis points yesterday, compared with as little as 58 points in mid-December. At just over 2 percent, the yield on France’s benchmark 10-year bond remains near a record low -- something Hollande indicated he wanted to preserve.

“I always said these two years would be difficult,” Hollande said, repeating a pledge to stop the rise in unemployment by year-end and vowing that economic recovery will take hold by the close of 2013.

Making good on those promises is key to reviving Hollande’s political fortunes. The economic gloom has rendered him the most-unpopular French president in more than 30 years, according to a TNS-Sofres poll in February. His approval rating fell 8 percentage points in the past month and is at a record low for a president 10 months into his mandate, a BVA poll showed.

Social Overhaul

Efforts to curb state spending will touch some welfare benefits that have been central to French lives for decades.

Hollande said that unemployment payments will have to include more incentives to return to work, and that the structure of child benefits would be reviewed. Longer life expectancy would force people to work longer, he said.

“We live longer, which is very good, but we’ll have to pay into the system longer,” Hollande said. “For wealthier families to get the same childcare support as poorer families, no, that won’t last.”

To rally support from his Socialist base, Hollande announced a re-jigged version of his campaign promise to tax all salaries above 1 million euros at 75 percent, which had been shot down by France’s constitutional court. In its revised form, companies, not employees, for the next two years will pay a surcharge equal to 75 percent of all salaries above 1 million euros, circumventing objections raised by the court.

Spending Cuts

At the same time, the government aims to reduce state spending by 1.5 billion euros next year, the first absolute decline in decades, Hollande said. The 30 billion-euro defense budget will be frozen -- not reduced -- and France’s nuclear deterrent will be preserved, he added.

The French government next month will present a “White Paper” laying out the defense priorities for the next five years. With the government seeking spending cuts to close its budget deficit, military leaders have taken to the media to warn of the risks of slashing the country’s defense capabilities just as it’s fighting a land war in Mali.

Hollande, who is juggling protests against gay marriage and the bail-in of bank depositors in Cyprus along with unemployment and dropping purchasing power, said it is voters who will judge his success at the next election in 2017.

“I want to be judged on one thing only: did I allow France to advance? If I didn’t, I deserve a sanction,” he said. “I have sangfroid, steady nerves.”

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