Openness or revolt, Hollande must choose

So, here we are. This is the key moment in the strategic manoeuvre that François Hollande started, and he is caught in the crossfire from his own camp and the right. Can he emerge from it still standing?

I believe that François Hollande’s task is to finally convert French socialism into social democracy: that he must de-Marxify the left. He has inherited a party that – and this is the fault of all socialist leaders including himself – has come up with a topsy-turvy analysis of the crisis, calling for a return of class struggle! The struggle “against” capital!

The Socialist Party (PS) has not entered the 21st century. Instead, seeking refuge, it has crawled back into the 19th. For it, the central question is inequality: the rich must be taxed. Following his election Hollande has been hobbled by advisers and ministers who believe this. He presides over a parliament filled with politicians who believe this.

As a candidate, Hollande understood that the crisis was undoubtedly more complex than this lazy reasoning would have it. He didn’t promise a lot. He dared to say that the start of the five-year term would be hard, and that the fruits would not ripen until the second half. He is prudent – some would say a ditherer.

Lack of intellectual clout

[[The problem with François Hollande is that he is not an intellectual, and it is his fundamental weakness. He lacks a vision]]. Realistic and pragmatic, he was quick to grasp that the socialist software had become obsolete, but he has nothing to put in its place, except trial-and-error and a taste for compromise. He makes guess-timates on the balance of power. A man of small cobbled-together compromises, he has no grand compromise to offer between socialism and modernity.

It is this absence that explains why, despite his cautious programme, he has headed off in two wrong directions. Surrounded by a Socialist machinery that rails against inequalities, the banks and the CAC 40 [a benchmark stock market index in France], he did not at first grasp that France’s main problem has been its low competitiveness. It’s not that companies earn too much money in France, it’s that they don’t earn enough.

Hollande quickly set things right from the summer of 2013, with the Gallois Report [written by the former boss of EADS, Louis Gallois, on the competitiveness of French industry]. The PS was severely rocked [by the report's tax cutting recommendations]. Many PS members still view this “supply-side policy” as a gift to the bosses, and cannot get over that; their vocabulary harks back to the 19th century.

The other error was with the budget. The same Socialist thinking has pushed for a hike in taxes on the rich to cut the deficit: tax the rich, hand it out all round, and everything will be fine. What’s more, when it comes to slashing expenditure – the other option austerity policy can turn to – the president is putting on the brakes. As a socialist, he is little inclined to hit his civil-service constituency.

Then the economists advised him to tread more softly. With growth at zero in 2012, Keynesian considerations justifiably demand that public spending not be cut. France, like Italy, risks plunging into recession. The request to Brussels for a little breathing space to get back on track with the conditions set out in the Maastricht Treaty was legitimate, and it has also been accepted.

This policy – a blend of the simmering and perpetual bias against the rich, Keynesian ideology and electioneering tactics – led to the “fiscal shock” of 2012: €30bn in taxes. But in a country of record-breaking taxes and levies, the fuse of a tax revolt had been lit. [[In 2013, one third of the effort went on cutting expenditures, but two-thirds went on taxes]] – which, this time, were imposed not just on the rich but on everybody, including the middle class.

Cross-your-fingers economics

The government hopes that in 2014 the recovery will have started, Keynesian considerations will be less severe, and 80 percent of the effort will be covered by cost-savings and 20 percent by taxes. In 2015, Hollande has promised, 100 percent of the budgetary austerity will clamp down on spending.

The shift will be completed in three years. That’s too long. François Hollande will eventually get around to a sound economic policy line: urging competitiveness and structural spending cuts. The “ambivalence”, however, will have stretched out for too long, and the “educational methods” will have been absent. We have on one side a majority that snorts and fumes morning and night on TV against a social-democratic president, and on the other a mood of fiscal discontent that verges on taking to the barricades.

What can François Hollande do? Even if it means delivering an unpleasant surprise to the PS and its majority, he should speed up in the direction he has recently struck out on. French competitiveness has not been restored; far from it, it must go further. The cuts in expenditure should be an occasion to make efficiency savings in public services.

Does he want to become a social democrat? Frankly, he should be one. The nerves of the body politic and the taxpayer have been rubbed raw.

View from Germany

A climate of revolt

France "is on the brink of revolt," says German daily Frankfurter Allgemeine Zeitung, adding that the country is "ungovernable":

The Socialists in power in Paris are unable to impose their decisions. A wave of dissent sweeps the country. Whether it is a question of introducing an environmental tax, the taxation of financial products or an increase in the corporate tax, within a few days the government backs down. Thus, to the charge of incompetence is now added the impression of weakness.

The paper says that French president François "Hollande today is paying the price of a victory in the presidential election based on a utopian platform promising to overcome the financial and economic crisis without demanding sacrifices from the people". The risk, stresses FAZ, is that –

the Socialists, who hold the councils in most of the large cities, could be severely beaten [in local elections next spring]. And the European elections could see the [far-right] National Front headed by Marine Le Pen lead the race, ahead of the conservative UMP opposition party. The Socialists would lag behind, according to current forecasts.