Editorial Board

France’s Socialists Get Real on Europe’s Economic Crisis: View

In a vote that may have serious consequences for Europe’s economic crisis, the French Socialist Party showed laudable level-headedness this week in selecting the moderate Francois Hollande as its presidential candidate for next year’s election.

Hollande ran on a platform that was largely free of the demagoguery that has characterized the French left’s electoral message in the past. Given an electorate beset by anxiety over a debt and banking crisis, it would have been easy for Hollande or his principal rival for the nomination, Martine Aubry, to appeal to class resentment or reduce their nation’s troubles to the supposed domination of the all-purpose foreign boogeyman, the “Anglo-Saxon” economic model that values profit more than people.

Instead, Hollande focused on the correct big issue: the need for France to shrink its ballooning budget deficit. In many regards, his approach is almost indistinguishable from that of his expected adversary in the election, France’s center-right president, Nicolas Sarkozy. Both vow to narrow the deficit to 3 percent of gross domestic product in 2013, from about 7 percent now. Hollande, however, goes further, by promising a balanced budget by 2017.

Most surprising, perhaps, the Socialist agenda calls for capping government-spending increases at 1.7 percent a year (a little less than the latest inflation rate of 2.2 percent). Sarkozy’s recently introduced austerity measures would limit spending growth at 1 percent.

To be sure, Hollande does lean on some old-fashioned and impractical thinking. He wants to restore the retirement age to 60 for some workers, rolling back a sensible move by Sarkozy to bring it up to 62, still far lower than in other comparable economies with aging populations.

Hollande has declined to endorse a call for higher taxes on the wealthy, but proposes instead to do away with a series of tax exemptions enacted by Sarkozy that he says favor the highest incomes. Corporate taxes, currently at 33 percent, would be lowered to 20 percent for companies that reinvest their profit and would be raised as high as 40 percent for firms that don’t do so or pay out dividends deemed excessive.

Regrettably, he also has endorsed a 0.5 percent levy on trades of stocks, bonds and derivatives by financial institutions. As we have said before, this proposal, known as the Tobin tax after its creator, the U.S. economist James Tobin, would have disastrous consequences by curbing growth.

None of this is intended as an endorsement of Hollande or any other candidate. Rather, we applaud the candor with which French politicians are making voters aware of the difficult choices ahead.

France was given a reminder of the stakes this week when Moody’s Investors Service said the nation’s top AAA credit rating may be at risk if the government agrees to guarantee the debt of weaker euro-area countries such as Italy and Spain as part of a rescue package. The uncertainty already has been damaging: The cost of insuring French bonds using credit-default swaps has soared to 191.5 basis points, from an average of about 84 in the first half of the year, making France’s debt most expensive to protect among the top-rated nations in Europe.

Of course, it remains to be seen whether Hollande and Sarkozy will stick to this responsible tone as the campaign gets under way. They are sure to be under considerable pressure to heat up their rhetoric to counter a much-less-measured third-party challenger, the far-right candidate Marine Le Pen, whose strategy will be to capitalize on the ambient anger with her anti-immigrant, anti-globalization message.

The mainstream candidates should resist the temptation to join her on the low road. A debased campaign will only harm France and further imperil the global economy.