Why We're Ungovernable, Part 4: Hollande's Short Honeymoon

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Published : November 15th, 2012
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Category : Editorials





The premise of this series is that once a country's debt rises to a certain level, the country becomes impossible to govern. Voters accustomed to a relatively easy life based on other people's money won't accept the truth that they're not actually rich, so each new leader sees his or her popularity plunge almost immediately and their "reform" program, whatever it happens to be, quickly discredited and abandoned. Now it's France's turn. From today's Washington Post:

France's President Hollande struggles to regain popularity

PARIS -- President Francois Hollande has suffered a dramatic decline in popularity during his first six months as leader of France, failing to convince much of the country that his Socialist government is capable of firm leadership to overcome a persistent economic slump.

Recent opinion polls have shown Hollande sinking nearly 20 points in approval ratings, to about 40 percent, with respondents from across the political spectrum expressing disappointment as unemployment, which is above 10 percent, continues to rise, factories close and growth remains elusive.

Hollande's friends and supporters have publicly urged the president to explain more clearly how his decisions fit into a coherent plan for restoring France's economic health.

In many ways, Hollande's fall from post-election grace reflects the simple fact that he is in charge as Europe's debt crisis forces France and other countries to raise taxes and cut back on cherished welfare expenditures. But French analysts say it also stems from Hollande's tendency to keep his options open as long as possible before making decisions, creating an impression that his path is unclear, and from missteps.

"I understand the worries of the people and the doubts they may express about the ability of politicians to meet the challenge," Hollande said in a news conference Tuesday at the Elysee Palace.

In response, he rolled out a series of measures decided since he took office, portraying them as a cohesive array designed to get the economy moving again and bring the national debt under control. The effects of these efforts, he added, should be judged at the end of his five-year mandate, not in the first stretch.

"These choices are consistent with my commitments, with my goals and, most important, with the interests of France," he said.

Some of the public's unease comes from the contrast between Hollande and his predecessor, Nicolas Sarkozy, who was known for making swift and bold decisions. Sarkozy, who was widely disliked by the end of his term, has enjoyed a comeback in public opinion since his defeat in May, particularly among his natural constituency of conservatives.

The latest Hollande measure to raise questions was an attempt to improve the competitive position of France's small and medium-size industrial sectors by lightening the heavy load of payroll taxes, which help pay for the generous welfare system. Prime Minister Jean-Marc Ayrault announced last week that firms making new hires would get tax rebates worth $26 billion beginning in 2014 and that value-added taxes would be raised to pay for it.

Only months before, while running for president, Hollande had denounced as grossly unfair a similar proposal by Sarkozy. Last week's announcement was portrayed as a turnaround. The Socialist faithful grumbled that liberal principles were being compromised by a gift to businesspeople that would be paid for at the supermarket checkout counter.

"We have a left-wing president who, several months after taking power, engineers a real cultural revolution, adopts a policy that is completely new for the French left," Raymond Cayrol, a generally sympathetic political researcher, told Le Figaro newspaper.

Jean-Luc Melenchon of the Leftist Front, whose followers mostly voted for Hollande, called the program "a shame." Jean-Vincent Place, a senator from the Socialist-allied Greens, wondered aloud whether his party's two ministers should remain in the government.

From the right, critics predictably denounced the decision as too little, too late. A report commissioned by Hollande, they noted, had recommended $39 billion -- and in payroll tax cuts, not rebates. Moreover, they said, if the economic situation is serious enough to require such a step, why should businesses have to wait until 2014?

Francois Bayrou, a centrist leader, called the Hollande system "a gas machine." He and others said the real hindrance to competitiveness is a bloated government that accounts for more than half the economy, despite cutbacks.

"One day, instead of cold-cocking the country with taxes and fees, a French statesman will have to slice, dice and cut amid the fat, the gelatin and the girdles that strangle our economy," wrote Franz-Olivier Giesbert, editor of the newsweekly Le Point.

Underlying much of the criticism is the impression that Hollande and his lieutenants have underestimated the depth of Europe's economic crisis and its effects in France. Hollande recently suggested, for instance, that the slowdown is a question of economic cycles and that growth will soon return. Unemployment will start to drop by the end of next year, he predicted.

At the same time, he and his finance minister, Pierre Moscovici, have insisted that France will respect a commitment to the European Union to reduce the government's budget deficit to 3 percent of gross domestic product by next year. Some of Hollande's supporters have suggested that the goal is not realistic unless growth returns, a prospect that, according to the International Monetary Fund, the European Union and the Bank of France, is unlikely anytime soon.

Some thoughts

The above article doesn't explain what Hollande did in his first few months, so very briefly: after inheriting a heavily indebted economy with the second highest labor costs in the Eurozone (4 euros an hour higher than Germany's), he chose from the standard socialist menu, raising taxes on the rich, promising to increase the government's overall tax take from 45% of the economy to 47%, and lowering the retirement age for many workers from 62 years to 60. This of course failed to produce a burst of new hiring, and now, six months in, he's already changing course and cutting taxes.

None of this will make a difference, though, which is the point: There is no mix of mainstream policies capable of returning France back to the pre-crisis days of steady growth and political quietude. Turmoil is the order of the day until debt falls by half or more.

"Sarkozy, who was widely disliked by the end of his term, has enjoyed a comeback in public opinion since his defeat in May..." This kind of instant buyer's remorse is to be expected. The other guy always looks better than the incumbent who is actually grappling with the country's problems.

The US election, which returned pretty much the same people to power, would seem to discredit the "ungovernable" thesis, but in reality it just illustrates the near-total cluelessness of the republicans. Space doesn't permit a full accounting of their dumb (in some cases crazy) choices, but suffice it to say that they managed to enrage Ron Paul supporters, women, and Hispanics for no apparent reason, and still would have won had the same number of republicans shown up to vote as in 2008. So watch the administration's approval ratings going forward and note the similarities to Hollande's. But again - to avoid an avalanche of right versus left name calling - this isn't about ideology. Nothing that a majority of Americans would vote for will work, so we'll remain ungovernable until the market puts an end to the age of fiat currency.



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John Rubino is the author of The Coming Collapse of the Dollar (co-written with James Turk), How to Profit From the Coming Real Estate Bust (Rodale, 2003), and Main Street, Not Wall Street (William Morrow, 1998). A former Wall Street financial analyst and columnist with theStreet.com, he currently writes for Fidelity Magazine and CFA Magazine He lives in Moscow, Idaho
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This is a fine article by Rubino until the final sentence. His contention was that we will remain ungovernable until the market puts an end to fiat currencies. As whatever it is that we choose to represent money is by decree, all currency is necessarily fiat, gold included. It can be no other way. The problem has never been what has been chosen to represent money, but how that money got spent.
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