French Woes: The Downward spiral of the Economy

examines how well Hollande is steering the Economy and whether the calls for a change of direction are justified

Photo Credit: Robert Patton

Photo credit: Robert Patton

On Monday 25th August this year, the French Prime Minister, Manuel Vallis, handed in his government’s resignation, a move triggered by economic minister Arnaud Montebourg’s criticisms of the government’s economic policy. With President Francois Hollande’s approval ratings at an all-time low of 17% (the lowest score of any French president since 1958) and unemployment approaching 11%, the reshuffle provided the opportunity for a show of power on behalf of the country’s leaders to reassert their control over the government.

The source of conflict in the French government was the approach to the economic troubles which continue to plague France as the world begins to emerge from the recession. It was announced in August, shortly before the government reshuffle, that French economic growth had stagnated in the second successive quarter, indicating that more needed to be done to stimulate the French economy and avoid a triple-dip recession. The lack of consensus over how to deal with this crisis has undermined the government’s ability to take action to address the lack of growth.

Even since the reshuffle, the government has continued to be plagued with division and doubt, facing a vote of confidence over economic policy on the 16th September. The government survived the vote by a margin of 269 to 244, but it remains to be seen whether it will be able to deliver on that confidence. Recent figures from the Bank of France indicate that French GDP rose 0.2% in the third quarter of the year, while unemployment remains high and business confidence low, holding France back from economic recovery.

Montebourg had denounced austerity as an “economic aberration”, and called into question whether the European austerity drive would deliver on the promised growth after four years of failure to achieve this aim. His subsequent expulsion from the government, along with fellow anti-austerity ministers Benoît Hamon and Aurélie Filippetti, demonstrated Hollande’s commitment to his economic policy and lack of tolerance for dissent. This clarity was badly needed after Hollande’s constantly changing policies since his election in 2012. Elected on a platform of high taxation on the rich and enmity towards “big finance”, his ideas then underwent a dramatic reversal, moving towards more business-friendly policies and tax cuts. This apparent U-turn provoked anger that the government was pursuing a completely oppositional direction to that for which they were elected, leading to Hollande’s deep unpopularity.

It appears that now the French government are taking clear and decisive action. On 1st October the French government unveiled its budget plans, planning to reduce public spending by 50 billion euros over the next three years. Although the government is facing fierce criticism from the Left over the deep cuts in spending on services such as health care and family benefits, the reduction will come at a steady pace, so as not to damage the feeble French economy. The government are, however, potentially restricted here by EU regulations. Under the current proposals, France will fail to meet its budget deficit target of 3% until 2017, running a deficit of around 4.4% this year, falling to 4.3% in 2015. As a result, it is possible that France could be forced to revise its budget, or face a fine, if the European Commission turn down its appeal for special dispensation. The likelihood that the European Commission will reject France’s budget was described as an “atomic bomb” hanging over France’s economy by French newspaper Le Figaro. A rejection would throw the government into further turmoil, potentially undermining even further what remains of public confidence in Francois Hollande and casting fresh doubt over the future of French economic recovery.

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