Hollande Economic Push Threatened by Minister Account Disclosure

President Francois Hollande’s effort to ask the French to tighten their belts was dealt a blow this week after the minister he’d charged with fighting tax evasion admitted to a secret overseas bank account.

Jerome Cahuzac, who resigned as Hollande’s budget minister two weeks ago, said on April 2 that he was caught in a “spiral of lies” about the 600,000 euros ($770,000) he held in an offshore account for years. In a rare, unscheduled television appearance yesterday, Hollande said Cahuzac lied to him and the French parliament and that his actions were “unforgivable.”

Cahuzac’s downfall comes as Hollande readies fresh budget cuts, warning the French last week of smaller pension and welfare benefits. The Socialist president has plumbed new lows in the polls and is struggling to revive a stalled economy amid the highest joblessness in 15 years. Hollande, who presents an economic plan to the European Commission by April 15, may have a fight on his hands from both the Opposition and his allies.

“This weakens Hollande,” said Laurent Dubois, a professor at the Institute of Political Studies in Paris. “It goes to the heart of the austerity debate. For the hard left, the charge will be that the Socialists are hypocritical: during the day they talk social justice, but at night they’re managing their Swiss bank accounts and shares on Wall Street.”

Cahuzac, 60, was kicked out of the Socialist Party yesterday and Prime Minister Jean-Marc Ayrault asked him to give up his seat in the National Assembly. Hollande said he’ll push for lawmakers convicted of tax fraud to be barred from office.

“The facts are intolerable,” Hollande said from the Elysee palace. “I know how serious this is for the French. From now on, those in office will have to set the highest example.”

‘Sweat, Blood’

The risk for Hollande is that the scandal impairs his ability to overhaul Europe’s second-largest economy. Hollande said last week he wants to change unemployment benefits to include more incentives for the jobless to return to work, a cut in childcare benefits for the wealthy and an increase in the length of working lives to help stem a pensions deficit.

“He’s about to undertake very difficult reforms,” Dubois said. “He needs to ask the French for blood, sweat and tears. He needs a firm hand, a clean hand. Yet one of his team members had his hand in the till.”

France’s budget deficit amounted to 4.8 percent of gross domestic product last year, wider than the 4.5 percent target the government had committed itself to. His government is currently on track to record a deficit of 3.7 percent this year, instead of the 3 percent sought by the commission.

‘Do Better’

Also, with 3.196 million people looking for work, French joblessness is just shy of a record reached in January 1997.

“I always said these two years would be difficult,” Hollande said March 27 in a 73-minute television interview. “I don’t want to just restore public finances, I need to show we can do better.”

Ten months into a five-year mandate, Hollande’s popularity is slumping. His approval rating fell 6 points in the past month to 31 percent, according to an Ifop poll for Paris Match magazine on April 2.

His predecessor, Nicolas Sarkozy, reached that level in 2011, four years into his presidency, according to Ifop, which interviewed 1,006 adults March 28 and 29.

“The political fallout from the scandal has only just begun,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy Ltd. in London. “Cahuzac was the face of fiscal rigor in France. The scandal is deeply damaging to Hollande personally and the fortunes of the Socialist Party.

‘False Haven’

Jean-Francois Cope, head of the main opposition UMP party, said that the revelation is a problem for Hollande whether or not he knew of Cahuzac’s account before April 2.

Either the president “knew nothing about it, which is very serious because it shows a certain naivete, or he knew and he lied to the French,” Cope said on Europe 1 radio.

Politically, the risk is that voters turn to extremist parties such as Marine Le Pen’s National Front, or FN, politics professor Dubois said.

“The thinking will be ‘they’re all bad,’” he said. “It’s a populist formula. People will turn to those whose hands are perceived as being clean -- but they’re clean because they’ve never had a ministry. The FN will be seen as a haven, though it’s a false haven.”

The National Front won nearly half the votes in a special election in the Oise district near Paris last month. The region is the political base of Eric Woerth, Sarkozy’s former budget minister, who’s also fighting a corruption scandal.