France has been going through a really difficult period since the global financial crisis as it struggles to renew economic competitiveness while maintaining high levels of state services and social protection. The problems have bedevilled the 18-month presidency of François Hollande, who has not tackled them effectively and whose credibility is consequently at rock bottom. His press conference yesterday launched an ambitious programme to put that right. But his refusal for now to answer a question about well-publicised personal difficulties over an affair will deflect attention from it until he clarifies the matter.
The reform programme is long on process and as yet short on detail. Its centrepiece is a “responsibility pact” between companies and the state involving reduced taxation in return for increased employment. Mr Hollande says there will be a €30 billion overall reduction in corporate tax intended to create jobs and enhance training, especially for young people. He promises greater simplicity and flexibility in corporate legislation. An elaborate process of consultation, social dialogue and negotiation of targets at sectoral level will be initiated and linked to central and regional government decisions on pensions, social spending, planning and taxation.
Mr Hollande’s second concrete commitment is to reduce France’s budget deficit by €50 billion by 2017 to bring it within the European Union’s 3 per cent deficit rule. Cuts will be made in central government spending, social protection and in the regions to reach this figure. It is a demanding target given the president’s ultra-cautious attitude to cuts and tax increases so far, reinforced by a fear of social conflict as various revolts gathered steam in recent months. He promises a thoroughgoing social partnership approach to give the process legitimacy; but it could easily get bogged down in disagreements and veto points if not driven by a ruthlessness to reach objectives uncharacteristic of his governing style.
Mr Hollande knows he must succeed with these reforms if France is to maintain its position as a strategic partner with Germany in Europe and an influential player on the global stage. That partnership has become more difficult as economic performance and demographics between the two states diverge. He proposes fresh initiatives with Germany on minimum pay, corporate taxation, energy and defence in an effort to narrow the gap. He has clearly decided this is preferable to forging an alliance with states such as Italy and Spain . His political position at home is made weaker by the media scandal concerning his personal life. He is entitled to the dignity of privacy but rightly acknowledges the French want him to clarify it soon.