During his 27 months in office, French President François Hollande has consistently disappointed his countrymen with predictions of economic recovery that haven’t materialized. Now the beleaguered Hollande is trying to quell a revolt within his own Socialist Party.
On Aug. 26, he named a new cabinet, ousting ministers from the party’s left wing who attacked his plans to curb government spending and ease taxes on business. In an interview with Le Monde on Aug. 23, Economy Minister Arnaud Montebourg said it was “absurd” for Hollande to propose spending cuts when the economy has barely grown in three years and unemployment exceeds 10 percent. Three days later, Montebourg was out of a job, replaced by a 36-year-old supply-side reformer named Emmanuel Macron. …
… Soon after taking office, Hollande started raising tens of billions in new taxes, mainly on businesses and high-income households. Social benefits and other government spending were left largely untouched, along with rigid labor rules that crimp French companies’ competitiveness. The government “tried to postpone the day of reckoning, hoping that there would be a European recovery” that would lift the economy enough to avoid difficult reforms, says Bruno Cavalier, chief economist at Oddo Securities in Paris. Instead, France Inc. slashed investment and hiring, forestalling a rebound.
Earlier this year, Hollande made a policy U-turn. He named a new market-oriented prime minister, Manuel Valls, and promised some €50 billion ($66 billion) in budget savings over the next three years to help offset lower payroll taxes on business. The plan is “exactly what Mr. [European Central Bank President Mario] Draghi would call growth-friendly,” Cavalier says.