An Old Fear Becomes a Reality

We have mentioned several times in the past that we felt one of the main reasons why France's president Francois Hollande has always been lukewarm about enacting tangible and sensible reform was his fear of being overtaken by those further to the left of himself. While we mainly had groups like Jean-Luc Melenchon's Parti de Gauche ('Left Party') in mind, it turns out that the greatest and more immediate challenge actually comes from within Hollande's own socialist party. After reshuffling his government and nominating the more centrist Manuel Valls as his new prime minister and throwing the left wing of his party a bone by concurrently elevating the role of the interventionist leftist Arnaud Montebourg (a.k.a. Mountebank), the Left Party, the Greens and the left wing of Hollande's own Socialist Party are threatening to sabotage the new government anyway:


“France's newly reshuffled Socialist government faces growing unrest from within its own party and from former coalition allies the Greens ahead of a confidence vote on Tuesday which will test France's ability to push ahead on reforms.

President Francois Hollande, whose administration has failed to lower stubbornly high unemployment in Europe's second-biggest economy after two years in power, is staking his credibility on a "responsibility pact" to cut companies' payroll taxes if they boost hiring in return.

New Prime Minister Manuel Valls, who was put in charge after Socialists suffered a rout in local elections last week, has been tasked with helming the reform despite resistance from the Left and after the Greens declined posts in his government in protest at his centrist stances.

Now around one hundred Socialist lawmakers have signed a manifesto calling for a change of policy ahead of Tuesday's vote, leaving open the possibility of abstaining unless Valls pledges to do more to fight German-led demands for budgetary rigour across Europe and to re-focus on growth and jobs.

"The local elections were a rebuke of (the current) economic policy and the ruling majority's disarray," Socialist deputy Pouria Amirshahi said. Amirshahi, who was one of the first to begin drumming up support for a new "contract" with Valls' government, said around one hundred deputies had joined.

"There will be no blank cheque (for the government)."


The government's ability to win the vote depends on limiting abstentions or opposition from within the Socialists' own ranks. If the Greens and the Radicals vote with Valls, there would need to be over 30 dissenting votes from Socialists to torpedo Valls' government and trigger a dissolution of parliament.

Valls pitched a message of reconciliation on Sunday, telling newspaper Journal du Dimanche: "If (the Greens) remain in the majority by voting their confidence, they will become a part of it. The bigger our majority, the more effective we will be."

Although Amirshahi said that voting outright against the government would be irresponsible, he left open the possibility of abstaining from voting, an option he said would be preferable to many of those who have signed the manifesto.

New Finance Minister Michel Sapin is due to travel to Berlin on Monday for talks with his opposite number Wolfgang Schaeuble, whose backing he will seek for France's call to re-negotiate a pledge to bring its public deficit within EU limits by 2015.

EU Economic and Monetary Affairs Commissioner Olli Rehn, the only official who can propose a deadline revision, told Reuters on Saturday he saw no reason to extend France's deadline.”


(emphasis added)


Brussels Likely to Remain Tough

We already know almost for certain that the Sapin gambit will fail. Not only is Olli Rehn from Finland, and hence predestined for the role of implacable fiscal task master by accident of birth, Germany isn't eager to play along this time either. There is widespread conviction in the EU (and for once, one must agree) that the 'original sin' – when both Germany and France overstepped the limits of the Maastricht treaty in 2002 and 2003 without suffering any consequences – was one of the root causes of the subsequent sovereign debt crisis, as it cemented the conviction that the rules had no teeth. Giving France even more time to meet its fiscal targets would amount to a repetition of the same mistake.

Moreover, Rehn correctly pointed out that deficit spending does not contribute to genuine economic growth and that those who decided to bite the bullet and have brought their debts and deficits down actually have something to show for it.


France Ending Up With Nothing Again?

In short, it is a very good bet that Sapin will return home empty-handed. This in turn means that Hollande must either offer some other concessions to his nominal allies on the left, or that he must run the risk that the new government may not survive the confidence vote. In that case there will be new elections, which are unlikely to result in a socialist majority. That in turn would make his party even more dependent on the good-will of groups further to its left.

It is quite ironic that the socialists urging the government to enter into a 'pact' with them (read: pursue their leftist agenda) seem to think the recent local elections were lost because Hollande's policies were not socialistic enough. We believe the exact opposite is true. In view of their resistance, it seems as though it will continue to be nigh impossible to tackle the necessary economic reforms. Not even Hollande's already watered down reform proposals may be realizable (note by the way that it has been ages since these proposals were first made).

Hollande's offer to cut payroll taxes is not unconditional. The so-called 'responsibility pact' is a halfhearted approach to reform that may well be destined to fail. If reforms that lead to a genuine economic recovery were enacted, there would be no reason to worry about employment. Still, the 'responsibility pact' would presumably still be better than doing nothing.

However, the way things are going, it looks increasingly like France may indeed end up with 'nothing' again, in spite of the cabinet reshuffle.




New French prime minister Manuel Valls. His government may turn out to be short-lived.

(Photo via AFP / Author unknown)





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