May 7, 2012
France will seek to shrink its debt without subjecting voters to drastic Greek-style austerity and will urge Europe's leaders to temper what president-elect Francois Hollande argues is a self-defeating obsession with cutbacks inspired by Berlin. The first Socialist to preside over the euro zone's second-largest economy since 1995 hopes his victory over conservative Nicolas Sarkozy will be consummated by a left-wing win in a parliamentary election in mid-June.
The presidential election opens a period of uncertainty for European integration and euro zone efforts to stem a long-burning financial market crisis fuelled by the fear that the region's debt has spun out of control.
It will also be a testing time for foreign policy, more because Hollande is a relatively unknown quantity on the world stage than due to any radical departure from France's stance. His main difference with Sarkozy was a commitment to pull combat troops out of Afghanistan by the end of this year, well ahead of the 2014 NATO target date.
Hollande won the two-round election with 51.6 percent of the vote in a May 6 runoff against Sarkozy. A working assumption is that his five-year term will not be shackled by a hostile parliament; the Socialists hope to secure control of the 577-seat lower house of parliament with the help of other left-wing parties on Hollande's coat-tails, in a two-round election on June 10 and 17.
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Polls published as presidential vote ended showed the left well placed to take control of parliament. An Ifop poll showed the combined left taking 44 percent of the vote, the centre-right 32 percent and Marine Le Pen's far-right National Front 18 percent. Since Le Pen has vowed to keep her candidates in second round races wherever they qualify, the right-wing vote seems likely to split, amplifying a Socialist victory.
That should avoid a debilitating period of left-right power-sharing, known in France as "cohabitation," that would occur if the conservatives were to hold on to the National Assembly. The Senate upper house came under left-wing control in 2012, and Hollande promises to restore greater responsibility to parliament in his tenure.
Assuming the left does win power in the National Assembly, what counts too is how well Hollande's left-of-centre Socialists do relative to other sometimes more hardline left-wing parties such as the Greens, the Communists and the Left Party.
WHAT TO WATCH:
- Negotiations ahead of and after parliamentary elections
- Opinion polls on the parliamentary vote; any sign of a further surge for the far-right National Front
- News on who are likely ministers in a left-wing government and whether/how many posts go to allies such as Communists, Greens or Left Party members.
Hollande takes over from a leader who spent most of his term fighting first a financial market crisis that spilled over from the United States in 2008, a downturn that pushed Europe into recession in 2009, and a sovereign debt crisis that began in Greece and has shaken the whole euro zone, which is again on the brink of recession.
Unemployment is at its highest since September 1999 at 10 percent and Hollande says he hopes to reverse the upward trend early in his term. His program includes plans to create 150,000 state-aided jobs. The moderate social democrat says a tax-and-spend program will allow him get rid of the public deficit by 2017 while still devoting fresh public money to priorities such as jobs and junior schooling.
It is a tall order based on forecasts that economic growth, now close to zero, will rise from about 0.5 percent this year to 1.7-1.75 percent in 2013 to 2.0 percent in 2014 and to 2.0-2.5 percent in the following three years. Hollande aims to find 100 billion euros by 2017, half from new revenues (tax primarily) and half from limiting nominal growth in public spending to 1.1 percent per year.
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Tax reform is one of his main money-raising pledges, on top of tax hikes on the well-off, and symbolic if not money-spinning tax rate of 75 percent on income upwards of one million euros annually. Plans to separate bank's speculative activity from retail activities based on savers' deposits are yet to be fleshed out and will be ready most probably by early 2013.
WHAT TO WATCH:
- GDP readouts including second-quarter data mid-May
- Monthly jobs data, more to see scale of challenge than any immediate inroads
- Rollout of early measures including whether first cabinet meeting agrees symbolically cuts as promised in president's, ministers' salaries, and any wider freeze on spending
- Nomination of finance minister and other sensitive posts, and early declarations by nominees
Hollande says he wants a renegotiation of the so-called fiscal compact agreed by European leaders in March in an attempt, spearheaded by German Chancellor Angela Merkel and Sarkozy, to end more than two years of market turmoil. That pact is all about austerity and should be augmented with measures to boost growth, otherwise France will not ratify it, Hollande says.
He plans to travel within days to visit Merkel to press his case, encouraged by signals that his demand for a pro-growth strategy appears to be making headway across Europe even if his ideas are not the same as others who say growth should be boosted by liberalizing structural economic reforms. Hollande has said he will send a letter immediately after election outlining his ideas, and that the four mains lines of focus are: creation of joint European bonds to finance infrastructure projects; greater investment by the European Investment Bank (EIB); a financial transaction tax levied by like-minded countries to help fund youth and education projects; and more efficient deployment of EU regional development funds.
WHAT TO WATCH
- The trip to Merkel in Berlin, likely to be more of a first encounter than a negotiating session
- Response and statements his initiative may prompt in other capitals
- Any revival in turmoil in euro zone debt markets
The main point of foreign policy where Hollande and Sarkozy differ is French combat troop presence in Afghanistan as part of wider NATO presence. Hollande says it is time to leave, that this is to be done by end-2012 (6-12 months earlier than Sarkozy was talking of), and that he will make the point to other leaders at one of his first international appearances at a NATO summit in late May in Chicago. On Syria, Hollande said in mid-April he would send troops to Syria in the event of a U.N. mandate for military intervention.
WHAT TO WATCH:
- Chicago and G20 leader summits in late May, both for declarations of and the readout on what will be first encounters in most cases for a French leader who knows few other leaders personally.
(Reporting By Brian Love)