The victory of François Hollande in the French elections has shown that the majority of the French electorate desire a different course -- away from the path of austerity and towards a path of greater public investment -- even though it was only a slight majority, with Hollande winning 51.7 percent of the vote.
The new president has presented himself as a socialist who wants to change the course of the country away from the influence of the rich elite. He does, however, have quite a few obstacles in his path, the most apparent being that of Germany and the European Commission, which remind Mr. Hollande that the austerity measures are part of binding contracts to which France must adhere and that he has no option but to follow them. Are Hollande’s politics likely to result in the breakup of the eurozone and thus set a new political trend in Europe? On May 6, the Daily Mail published an article that noted the significant influence Germany has on the euro and the nations of the eurozone as a whole. It stated that a German government spokesman had announced they would reject any French government policy that promotes economic growth via increased government spending and borrowing. The spokesman, Steffen Seibert, stated that “budget discipline” was important and that the French government should stay on course with its existing agreement to reduce the national debt. Germany will not sign a new fiscal negotiation, Mr. Seibert said. He did say, however, that the relationship between Germany and France will remain cordial under Hollande. Interestingly, Hollande has stated that he will balance the budget and deal with the debt by the end of his five-year term. The article noted that financial investors will increase their pressure on the French government to make sure he does so. France’s credit rating was reduced back in January, and it no longer holds the maximum Triple-A rating that attracts the most investment. Standard & Poor’s, the credit rating agency responsible for marking down France’s credit rating, has said that a further reduction in the rating is not likely in the immediate future. However, according to the Daily Mail, they did say there is a one in three chance of the rating being slashed again within the next two years. The credit rating is very much tied to the fact that the euro and the spending power of governments are directly linked to the creation of private credit and investment.
Hollande’s plans to tax people who make a million euros a year or more at a rate of 75 percent could have negative consequences if the rich start moving to other EU countries with lower tax rates. France has been a fairly generous welfare state over the years, and Hollande has clearly pushed to preserve and possibly even strengthen this. He has said that he “dislikes the rich” and is unhappy with their financial power and influence over politics. However, he wants to spend 20 billion euros during his tenure, and critics are not sure where he will be able to acquire that money. Douglas McWilliams of the Centre for Economics and Business Research told the Mail that the eurozone could start breaking up very soon and that the European Central Bank may have to start printing more money and lending it to banks, raising fears of inflation.
The Daily Telegraph also focused largely on the significant influence of Germany in the eurozone and its pressures on the new French president to stick to current austerity treaties. In an article published on the 7th, The Telegraph stated that Hollande’s anti-austerity rhetoric is “a direct challenge to Germany’s drive to enshrine budgetary and debt controls in EU treaties.” The article also stated that unless Hollande waters down his plans, there will be an upset in the relationship between the two nations and that German Chancellor Angela Merkel was using a “veiled threat” to remind Mr. Hollande to stay on the course of austerity and budget reduction.
Bound by deals to float euro
Twenty-five EU member nations have signed a “fiscal compact” to balance their budgets and thus elections and a new leader in each member nation could effectively destroy the euro if they all follow Hollande’s rhetoric and make it a reality. The Telegraph also quoted an unnamed European Commission spokesman who said they “expect agreements to be ratified” and that they are binding. Thus, it is understandable why some people are saying the future of the eurozone is in great doubt. It also raises questions as to whether there is any real democratic significance to elections in each member state if they have no real control over their own economy.
On May 7, the German newspaper Frankfurter Allgemeine Zeitung called Hollande’s victory “the triumph of the born loser” and published a rather critical overview of his political life. The article also discussed Hollande’s proposed policies in greater detail. It stated that Hollande wishes to reduce his salary and that of his fellow ministers by 30 percent. He has plans to freeze the price of fuel for at least three months in order to give the government time to rethink the current fuel taxation arrangement. He has also pledged greater financial assistance for families with school-aged children, with an increase of 25 percent of allowances promised.
On the same day, the Financial Times Deutschland said that Angela Merkel was starting to look “lonely” in Europe as a result of Hollande’s seemingly opposite stance to that of the outgoing Nicolas Sarkozy. It called Hollande’s victory an event that risked further chaos in Europe. The article also stated, “For the German, it is now a matter of defending their leadership role in the EU.” However, not all of the German press took a negative stance towards France’s new socialist president. On May 7, the Suddeutsche Zeitung stated that while France is likely to become weaker as a nation, Hollande may end up being a better partner to Germany than Sarkozy was. The paper sees such a partnership as important in preventing Germany from becoming isolated in the EU, as many nations are starting to see it as a bullying spokesperson for the worst of the financial elite.
Handcuffed by fiscal strings
In an article titled “Change Europe can believe in?” Asia Times correspondent Pepe Escobar described François Hollande’s victory as not only significant for France but also for the future of Europe itself. He described Hollande as a man completely opposed to an unregulated market system who wants to increase the welfare state with very significant investment. He is a man who is directly opposed to the policies of the European Central Bank, the International Monetary Fund (IMF) and the European Commission, according to Escobar. Yet, despite his stance, Hollande’s hands seem to be tied by his financial masters. France has not had a balanced budget since 1974, wrote Escobar. Public debt in France is currently 90 percent of gross domestic product (GDP), and the government debt to GDP ratio is almost 57 percent, the latter being higher than any other nation in the eurozone. Yet Hollande wants to create jobs for the 10 per cent of his people who are unemployed, lower the retirement age and lower electricity bills for poor people. His proposition to tax millionaires at 75 percent is the route he has decided to take to finance his budget, and Escobar wrote that this is a risky way to go given the close ties between the rich elite and the financial class.
Hollande is apparently in favor of seeing the decline of the US dollar as the global reserve currency, and he would be happy to see it replaced by a basket of different currencies from emerging nations such as Brazil, Russia, India and China. Thus, Hollande may well be at odds with the powerful American financial institutions that have also been very much involved in European investment.
In conclusion, Hollande’s victory could see the euro continue to falter and eurozone member nations start to withdraw their membership if Hollande actually insists on watering down or even opposing his nation’s current agreement to balance its budget and meet austerity targets. France is historically an influential European nation, and its decisions are likely to have repercussions just as great as those of Germany. Time will certainly tell if Hollande has the guts to actually demonstrate his “socialist” principles in the face of strong pressure from market forces to do otherwise.
*Hossein Turner is a freelance journalist based in the UK.