John Bruton

Opinions & Ideas

Category: François Hollande

FRANCOIS HOLLANDE’S VICTORY- WHAT DOES IT TELL US ABOUT FRANCE ?

The result of the French Presidential election was no great surprise in a way.

In fact, when one considers that  most of his first round competitors had  endorsed Hollande,  outgoing  President Sarkozy did  well to get  48%,  as against the mere  27% he had  got in  the first round.

The  Centrist Bayrou, and the Left Front candidate Melenchon, had both explicitly endorsed Hollande, and  the National Front  candidate  Marine  le Pen, most of  whose  supporters were otherwise trending in Sarkozy’s favour,    said she was  going to  vote for nobody  .

The breakdown of the vote is interesting .

Sarkozy did best in a Northern  block of territory  from Normandy over to  the German  border in Strasbourg, and  Hollande did best in Paris, and in the  rest of France, apart from the  Riviera.

Unlike the US, where women  are more for Obama, and men more for Romney, the two candidates in France got more or less the same level of  support from men as from women.

Those with higher educational qualifications voted more for Sarkozy ( 54%/46%). So also  did those who were financially better off.

Employees were  54/46 in favour of Hollande, whereas  business and self employed were  58/42 for Sarkozy.

AGE GROUPS VOTED DIFFERENTLY

The age distribution of support was most marked.

Those under  24 were  59/41 for Hollande.   
The 25 to 34  and the 50 to 59 age groups were  for Hollande.

But the 35 to 49 age group, and the over 60s, favoured Sarkozy.

SO DID PEOPLE OF VARYING RELIGIOUS VIEWS

The most remarkable cleavage of all was on the index of religious practice.

Practising Catholics were 73/27 for Sarkozy.

Protestants were 61/39 for Sarkozy.

But those who said they had no religion were 66/34 for Hollande.

Muslims supported Hollande by a margin of  93 to 7!   Sarkozy’s anti immigrant  rhetoric and his talk  about strengthening borders may have  won him  support from elderly voters, but it  may make it difficult for his party to win Muslim votes in future elections and they are a very important  voting bloc in France.

HOLLANDE IS ALSO COMMITTED TO AUSTERITY

Some may think that the election of Hollande will mean an end to so called austerity policies in France.  In fact ,he  gave that impression himself during the campaign. Outside France, some people  have seized on Hollande’s campaign rhetoric as a sign that   borrowing does not have to be reduced, and  budgets do not have to be balanced. They are mistaken.

In fact, if those who voted for him read his programme closely they would see that he is committed   to getting the French budget deficit down to  3% of GDP by  2013, and to eliminating it altogether by  2017.  That simply  cannot be done without austerity, at least  in France itself.

Of course a little less austerity  IN GERMANY  might help achieve that goal, if it meant that more Germans bought French goods, or took their holidays in France.  But even that is not guaranteed.

France’s big problem is a poor export performance. Whereas Spanish manufactured  exports are at 108% of the level they were at in  1999, French  exports are now   at only 72% of their  1999 level.  This is not, it seems , because French wages are too high, but rather that French companies have not innovated enough.

Meanwhile the French national debt is at its highest level ever, apart from the peaks it reached after the two world wars.

Hollande is committed to increasing the corporation tax on big companies to 35%, and reducing the tax on small companies to 15%. This would create and incentive to companies to stay small, which may not help the French export effort much.

He is also committed to employing more teachers. This will be difficult to reconcile with his plans to eliminate the budget deficit.

MEANWHILE HE HAS TO FIGHT ANOTHER ELECTION………

The immediate task facing President Hollande is that of winning a majority in the National Assembly. This may mean that he will avoid facing really difficult choices until June, when the Assembly elections are due, and  stay in campaign mode until then.

His difficulty is that the financial markets may not give him the  space in which to do that.  If the markets feel that, in the medium term, the French budget  deficit is going to rise faster than that of Germany, interest rates on French bonds will rise faster than those on German bonds . That could create problems for the euro, something to which President Hollande is committed.   

AND DEAL WITH THE PROBLEM OF GREECE

The Greek election result poses an even more immediate problem.

Greeks favour staying in the euro, but do not favour the conditions on which they  can access funds provided by the taxpayers of  other euro area  countries.

These conditions involve reforming wage agreements, cutting pensions ,improving tax collection, and  cutting the cost of  pharmaceuticals used in the health service. There is also a difficulty that Greece has  not done all the things it  promised, like eliminating supplementary pensions and getting rid of off budget funds.

The trouble is that things are now so bad in Greece, that many Greek voters convinced themselves that they cannot not get worse, and thus  voted for parties that want to reject the conditions on which money is  currently being lent to Greece to  keep its  government functioning.

Unfortunately, things can get much worse in Greece, even than they are now, if taxpayers in other countries decline to provide more funds.   A collapse in the banking system, and a disorderly exit from the euro, would be worse than anything Greece has experienced  so far.

President Hollande, as a new leader, with a democratic mandate, has a capacity to persuade  the Greek people to see sense, to a degree that may not be open to other European leaders, including Chancellor Merkel. President Hollande can  be persuasive in Greece because

France favoured Greek entry to the euro.

France never occupied Greece.

French banks have lent to Greece in the past.

Francois Hollande is a man of the left.

All these  things give him an authority  to speak to the Greek people,  at a critical moment  for them, and for Europe.

THE FRENCH PRESIDENTIAL ELECTION

I was in France this week,  and had a chance to have a closer look at the  French Presidential Election Campaign.
It is a two round election, with only the top two in the first round, contesting the second  round three weeks later.
At the moment,it is likely the two in the  second  round will be François Hollande, the Socialist(now on 27.5%) and Nicolas Sarkozy (now on 29.5%).
The third and fourth candidates, Jean Louis Melanchon of the  Left Front, and  Marine  le Pen of the National Front are both on 14%, so neither of them is likely to overtake the front runners. Francois Bayrou, the Centrist candidate, is on only 10%.
When voters are asked who they would vote for in a straight fight between Holland and Sarkozy,  they plump for Hollande  by a margin of 8 points.
This is because Hollande  picks up a bigger share of the eliminated candidates’ votes.  For example, Hollande has a margin of 81/3 among Melanchon’s voters, and 40/32 among Bayrou’s.   Sarkozy beats Hollande by 49 to 16 among  Le Pen’s electorate.
Sarkozy’s best chance to win is if he can convert Bayrou’s voters to his  cause, possibly by offering the Prime Ministership to Bayrou, while still holding on to the National Front electorate. This would not be an easy task, because there is little or nothing in common between Bayrou’s electorate and that of the National Front
Some of the campaign debate is about taxing the rich. This is in response to the fact that incomes at the top in France have risen faster than incomes in the middle and lower range.
Clamping down on Islamic militants, and employing more teachers, are other recurring themes.
The fact that France has an excessive budget deficit, has lost competitiveness vis a vis Germany, and as a result has a big trade deficit, is not getting attention from the big parties.

FRANCE’S LOSS OF COMPETITIVENESS

Hourly labour costs in France are now 10% higher than in Germany , whereas ,in  2000, they were 8% lower.
The State in France spends 56% of GDP. Deductions from wages to pay for health and pensions (the retirement age is only 62)  are extremely high and deter job creation. Yet French politicians blame things like the Irish 121/2% tax rate for their problems in attracting investment, rather than the cost of employing people in France itself.
If Hollande wins, he could find himself dependent on Deputies from the party of the Left Front, who favour a complete ban on redundancies, and a 100% tax rate on incomes above 350,000 euros. Hollande himself already favours a top 75% tax rate, and an increase in the wealth tax.
France has a revolutionary tradition and a passionate belief that political action can change things. The difficulty is that globalisation, European integration, and accumulating Government debts,  have reduced political options more than French politicians are willing to  admit.

FREE MOVEMENT OF CAPITAL IGNORED IN THE DEBATE


The policies of the French Left would be very difficult to implement, because as long as France continues to allow free movement of capital, people who feel they are being overtaxed can simply leave the country, and take their money, and their factories with them. 
Free movement of people, and of capital, are requirements of EU and euro membership, and have allowed France to develop world class companies, like Pernod Ricard ,which owns Irish Distillers.
France  is prepared to take the benefits from globalisation, but has not accepted that these benefits come with limitations on what is politically feasible.  
 I believe that the unreality of the debate in France about its public finances, and about its true economic options, could become a threat to the future of the euro.

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