The French returned a socialist to power in the Elyse Palace in May when Francois Hollande became president. The victory of the left was completed last month when the electorate gave them a mandate in a general election. This means that Mr Hollande will be able to push his vision through parliament and into action. France is the second largest economy in the Eurozone and outgoing president Nikolas Sarkozy tended to see things along similar lines to German Chancellor, Angela Merkel.
Germany is adamant that the way through the Eurozone crisis is through tighter fiscal union, tighter fiscal discipline and austerity measures designed to reign-in deficits to levels acceptable under the Eurozone convergence criteria. However, Mr Hollande was elected on a mandate of boosting growth through spending and promise not to subject the people to the woes of austerity. Going forward, all politicians are going to have to convince their electorates that they can deliver prosperity without painful austerity measures – this means that current administrations are likely to fall as soon as the polls close.
The French have just approved measures to tax households earning over the €1.3 million mark at 75% for a one-off tax with banks and oil companies also getting hit. These measures are hoped to net the exchequer €2.3 billion with broader hikes aiming to pull in €7.2 billion. On the spend side of the equation, they aim to honour election pledges to engage thousands of extra teachers and 150000 state- aided jobs. France hopes to achieve a balanced budget by 2017. Currently, France is spending €50 billion a year to service its public debt of about €1.2 trillion – roughly 90% of the nation’s GDP.
It remains to be seen how well the Franco-German axis within the EU will stand up to this shift in political direction within France. Ironically, Mrs Merkel’s closest ally is likely to be Britain’s David Cameron, but, of course, the UK is outside the Euro and has its own vested interests to consider.