August 19, 2014 3:13 pm

François Hollande faces gloomy ‘rentrée’

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François Hollande will reconvene his cabinet on Wednesday after a holiday in the south of France, with ministers already busy signalling imminent announcements of tax cuts and other measures to stimulate growth.

But as the French president approaches the halfway point of his five-year term this autumn, he has returned to face economic and political gloom that only deepened during his brief summer break by the sea.

In an indication of Mr Hollande’s plight, an Ifop opinion poll at the weekend showed fewer than one-in-five voters had confidence in the socialist government’s ability to restore growth, sort out the public finances and reverse rising unemployment.

The poll followed news last week that the economy showed zero growth in the first half of the year, prompting the government to halve its forecast for the full year to 0.5 per cent.

This was not how it was supposed to be for Mr Hollande – now haunted by his breezy assertion a year ago that the recovery “is here”.

“He believed the situation would improve and he would show things were better than everyone predicted,” says Laurent Bouvet, professor of politics at Versailles-Saint-Quentin university. “But there is a recognition now that it is not working out like that. The rentrée (return from holiday) is going to be more than difficult.”

Mr Hollande is caught in a painful bind. His shift in January to a pro-business, supply-side policy of tax and public spending cuts – dubbed the “responsibility pact” – has still to be fully implemented, has yet to produce concrete results and is strongly contested by rebels on the left of his Socialist party.

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Meanwhile, the lack of growth has undermined already faltering efforts to bring the country’s budget deficit within the EU-designated limit of 3 per cent of gross domestic product.

The twice-delayed deficit target of 2015 is set to be missed again without some tough new measures, raising the threat of sanctions by Brussels. But Mr Hollande has said he is not willing to go beyond the €50bn in spending cuts promised for the next three years – and he wants to extend €40bn promised in business tax cuts to the household sector to try to boost growth and soothe public frustration.

Manuel Valls, the reformist prime minister, said at the weekend there was “no question” of unravelling the “responsibility pact” – a comment aimed mainly at rebellious Socialist members of parliament.

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Instead, the government is promising pro-growth measures to reverse a precipitous slide in new housing starts that has hit the construction sector, break up professional monopolies and ease labour market regulation on smaller companies.

But Paris has also sought to spread the blame, insisting that the EU must ease up on fiscal austerity (meaning allowing France to miss its deficit target again) and that the ECB should do more to combat the threat of deflation. It also wants Germany to spend more to stimulate demand.

These calls have met short shrift in Brussels and Berlin, where there is a strong feeling that, while Mr Hollande is now on the right track, France has not done enough to reform its sclerotic economy, as other eurozone countries, such as Spain and Portugal, have done.

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“France has structural challenges to meet. She must restore competitiveness and reduce the very high level of public spending,” said Jens Weidmann, president of Germany’s Bundesbank, in an interview this month with Le Monde newspaper. “It is not up to neighbouring governments or the ECB but each government to create at home an environment favourable to business innovation and employment.”

Prof Bouvet says Mr Hollande faces an impasse. “What he has done doesn’t satisfy anyone. To have an effect on the economy, he would have to go much further. But he doesn’t have political support for that. He can’t go forward and he can’t go back.”

To date, the government has at least benefited from a lack of coherent opposition from the mainstream centre-right UMP party. But that might be about to change. Former president Nicolas Sarkozy is limbering up for a potential comeback next month. That could make la rentrée even more combustible for Mr Hollande.

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