The failing policies of Francois Hollande
5 March 2013
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4 March 2013
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Tax and Fiscal Policy
19 November 2024
French president Francois Hollande is walking on a tightrope. Many of the promises he has made seem to be untenable.
Firstly, Mr. Hollande has failed to ‘stimulate’ French growth. The French economy contracted by 0.3 per cent in the last quarter and stagnated last year. In fact, the French government’s very optimistic 0.8 per cent growth forecast for 2013 is likely to be revised downwards, especially following criticism from the French Audit Office (Cour des comptes) and the more realist forecast of 0.1 per cent from the European Commission (EC).
Secondly, in the context of such low growth, it will be extremely hard to meet the 3 per cent deficit target in 2013 (and indeed France begged Brussels for one more year). The Commission forecasts a deficit of 3.7 per cent in 2013 and 3.9 per cent in 2014. From this perspective, the objective of balancing the budget in 2017 sounds like another promise far in the future. And with public debt forecast to reach 93.4 per cent of GDP this year, the ‘point of no return’ seems to have been passed.
Thirdly, the French were told there would be no new tax increases – except the President declared recently that there might be some, but subsidiairement (‘in addition’). Adding to this quasi-Orwellian approach, Jerome Cahuzac, delegate Minister to the Budget then said that €6 billion would be found to ensure ‘taxation stability’.
During his visit to Greece last month, François Hollande gave a speech against austerity, even though he himself initiated an austerity policy and, indeed, an austerity policy of the bad type – just like in Greece. Indeed, as the Audit Office yet again recently recalled, the effort to reduce France’s budget deficit was carried out essentially by increasing taxes (for 75 per cent of the ‘effort’) rather than by cutting public spending: a wonderful strategy to kill growth indeed.
A more effective approach would be to reduce public spending and engage in serious, sustainable, efficient reforms. There are talks about possible ‘spending economies’ (which are not exactly spending cuts) but nothing up to the real challenge. And indeed, according to the EC, the level of public spending in France is likely to reach 57 per cent of GDP in 2013 and 2014. Such reforms would involve downsizing the administration, rethinking an over-generous welfare system based on status, corporatism and vested interests, and reforming the labour market.
Some aspects of the so-called ‘reform of the labour market’ agreed upon between employers’ and employees’ unions in January go in the right direction – that of flexisecurity. But will it be enough? Given the previous level of rigidity, one doubts it – actually even the President himself does. He and the prime minister have kept on saying ‘the unemployment curve will be inverted, whatever the cost’, but with 3.2 million officially unemployed and a monthly average of 30,000 more jobless under Hollande, last week the President finally had to acknowledge that ‘the year 2013 will be marked by a progression of unemployment’. The EC sums it up: ‘in the context of stagnating economic activity and rigid nominal wages, employers are likely to focus more on restoring productivity, to the detriment of job creation.’
The government boasts about its contrats d’avenir (contracts of the future), a taxpayer-funded employment programme. Yet the government only has 100,000 such contracts for 2013, and only 6,500 have been signed so far. Given the rate of unemployment growth (+30,000 monthly), it is hard to see how such a programme will absorb the increase. And then, as always, there is the hard law of economics: such programmes tend to destroy jobs overall – given the corresponding taxes they require and given these jobs do not really add ‘value’ to society.
Just like Greece, France is about to pay the price of its dysfunctional democracy in which accountability is lacking and voters have been ‘bought’ for decades with other people’s money – especially that of future generations. Well, we are now the people from the future…
Dr. Emmanuel Martin is the Director of the Institute for Economic Studies – Europe and the editor of LibreAfrique.org, the francophone program of the Atlas Economic Research Foundation.
Firstly, Mr. Hollande has failed to ‘stimulate’ French growth. The French economy contracted by 0.3 per cent in the last quarter and stagnated last year. In fact, the French government’s very optimistic 0.8 per cent growth forecast for 2013 is likely to be revised downwards, especially following criticism from the French Audit Office (Cour des comptes) and the more realist forecast of 0.1 per cent from the European Commission (EC).
Secondly, in the context of such low growth, it will be extremely hard to meet the 3 per cent deficit target in 2013 (and indeed France begged Brussels for one more year). The Commission forecasts a deficit of 3.7 per cent in 2013 and 3.9 per cent in 2014. From this perspective, the objective of balancing the budget in 2017 sounds like another promise far in the future. And with public debt forecast to reach 93.4 per cent of GDP this year, the ‘point of no return’ seems to have been passed.
Thirdly, the French were told there would be no new tax increases – except the President declared recently that there might be some, but subsidiairement (‘in addition’). Adding to this quasi-Orwellian approach, Jerome Cahuzac, delegate Minister to the Budget then said that €6 billion would be found to ensure ‘taxation stability’.
During his visit to Greece last month, François Hollande gave a speech against austerity, even though he himself initiated an austerity policy and, indeed, an austerity policy of the bad type – just like in Greece. Indeed, as the Audit Office yet again recently recalled, the effort to reduce France’s budget deficit was carried out essentially by increasing taxes (for 75 per cent of the ‘effort’) rather than by cutting public spending: a wonderful strategy to kill growth indeed.
A more effective approach would be to reduce public spending and engage in serious, sustainable, efficient reforms. There are talks about possible ‘spending economies’ (which are not exactly spending cuts) but nothing up to the real challenge. And indeed, according to the EC, the level of public spending in France is likely to reach 57 per cent of GDP in 2013 and 2014. Such reforms would involve downsizing the administration, rethinking an over-generous welfare system based on status, corporatism and vested interests, and reforming the labour market.
Some aspects of the so-called ‘reform of the labour market’ agreed upon between employers’ and employees’ unions in January go in the right direction – that of flexisecurity. But will it be enough? Given the previous level of rigidity, one doubts it – actually even the President himself does. He and the prime minister have kept on saying ‘the unemployment curve will be inverted, whatever the cost’, but with 3.2 million officially unemployed and a monthly average of 30,000 more jobless under Hollande, last week the President finally had to acknowledge that ‘the year 2013 will be marked by a progression of unemployment’. The EC sums it up: ‘in the context of stagnating economic activity and rigid nominal wages, employers are likely to focus more on restoring productivity, to the detriment of job creation.’
The government boasts about its contrats d’avenir (contracts of the future), a taxpayer-funded employment programme. Yet the government only has 100,000 such contracts for 2013, and only 6,500 have been signed so far. Given the rate of unemployment growth (+30,000 monthly), it is hard to see how such a programme will absorb the increase. And then, as always, there is the hard law of economics: such programmes tend to destroy jobs overall – given the corresponding taxes they require and given these jobs do not really add ‘value’ to society.
Just like Greece, France is about to pay the price of its dysfunctional democracy in which accountability is lacking and voters have been ‘bought’ for decades with other people’s money – especially that of future generations. Well, we are now the people from the future…
Dr. Emmanuel Martin is the Director of the Institute for Economic Studies – Europe and the editor of LibreAfrique.org, the francophone program of the Atlas Economic Research Foundation.
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