The president rejects criticism that his emblematic commitment to a 75-per-cent marginal tax rate was damaging to business. He has been known to point out that as an election ploy, it worked very well. But recently he has moved to reverse the imposition of high capital gains taxes on investors, acknowledging that they were a mistake.
Mr. Hollande has set out a relatively modest reform path. He is addressing competitiveness via a €20-billion tax cut for companies to offset their high labour costs, and an agreement between employers and trade unions to loosen the rigid labour code. The government promises to tackle pension reforms, the high cost of unemployment and family benefits, and wasteful local government and health spending in the quest to cut a public spending bill that amounts to 57 per cent of gross domestic product.
Comforted by record-low borrowing costs for France’s sovereign debt, the mantra is a commitment to budget responsibility – but without “austerity,” by which Mr. Hollande means the harsh cuts in public services, employment and wages that he has always rejected. With austerity, the Elysée warns, looms the threat that European governments will “fall one after the other,” with populists filling the vacuum.
The president’s critics, who want to see faster progress on public spending and structural reforms, are far from convinced. “What the government has done so far is insufficient,” says Mr. Chaney. “Given the worsening of the economic situation, a gradual approach is a luxury the government does not have. The lack of competitiveness has a cumulative effect. Once you have lost market share it is much more difficult to regain it.”
He warns that Italy, and especially Spain, are fast gaining competitiveness against France. But there is little sign so far that the government is preparing to go faster – or further, in areas such as labour market reform and shaking up restrictive practices in product and service markets, as the European Commission and other international institutions have urged.
Meanwhile, Mr. Hollande’s anti-austerity stance has hardly endeared him to Ms. Merkel. Tensions have been exacerbated by recent comments from within the Socialist party attacking Ms. Merkel’s “selfish intransigence” and calling for “confrontation” with Berlin.
Mr. Hollande says France must find compromises in what he calls “friendly tensions” with Germany. Elysée officials reject the notion that France’s weakness has reduced it to the “top of the second division” in Europe, leading a poorer south against a richer north.
But Paris’s ability to press its case against German resistance on issues such as euro zone banking union, mutualization of debt and more intervention to stimulate growth by the European Central Bank – not to mention Mr. Hollande’s call for Berlin to do more to stimulate Germany’s economy – is weakened by France’s own economic fragility.
“It is a very rocky patch for the bilateral relationship that is aggravated by a feeling that [Mr.] Hollande does not have control over his troops,” says Thomas Klau of the European Council on Foreign Relations in Paris. “There is considerable mutual distrust and a lack of understanding of each others’ policy positions.”
Since the Cahuzac crisis, calls have mounted for Mr. Hollande to reshuffle his government and make a new start, including replacing Jean-Marc Ayrault, his loyal but lacklustre prime minister. Candidates proposed for inclusion include Louis Gallois, former chief executive of aerospace group EADS, and Pascal Lamy, head of the World Trade Organization, whose term ends in August.
Mr. Sarkozy’s UMP party is demanding a wholesale renewal of people and policies to fend off further decline. “If François Hollande does not very rapidly take measure of the situation, I fear a fragmentation that will make France very difficult to govern,” warned François Fillon, prime minister under Mr. Sarkozy, in an interview with Le Figaro on Saturday.
Mr. Hollande is also under pressure from the left, with Jean-Luc Mélenchon, leader of the Left Front and an election ally against Mr. Sarkozy last year, coming out in open opposition by leading a big street demonstration against government policy in Paris on Sunday.
Inside the Socialist party, there is growing nervousness, fuelled by open dissent about Mr. Hollande’s policy from some ministers and among members of parliament. “It’s not easy,” says Fleur Pellerin, a rising junior minister for small business and the digital economy. “It is important we have a single voice. But we have a very diverse majority so it is difficult. There have to be compromises.”
Mr. Hollande has so far signalled that he will hold on to Mr. Ayrault – but many expect a shake-up and streamlining of the other 35 ministers by the end of the summer. However, it would be a break with his style of political management for there to be a significant shift in policy in favour of more radical reform.
If there was, it would almost certainly come as a further disappointment to those who returned to the Bastille for this year’s subdued May Day march. “I voted for Hollande because I wanted to get rid of Sarkozy,” says Jérôme, currently studying for a doctorate in sociology, as he smokes a roll-up cigarette. “The worst thing is having a government that calls itself left but is just the same as the last one.”Report Typo/Error