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France’s tax-and-spend plan on the line

06 June 2012   (0 Comments)
Posted by: SAIT Technical
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Brian Love (Business Report)

FRENCH President Francois Hollande’s Socialists are not surfing towards a landslide win in parliamentary elections this month, yet a lesser triumph should still allow France’s first left-wing leader in 17 years to rule effectively.

The stakes are high in the contest on the next two Sundays, as the 57-year-old social democrat can only hope to implement his tax-and-spend plans if the left takes control of the lower-house National Assembly, as polls predict.

But even a mix of hard leftists in a left-wing majority should not upset Mr Hollande’s chances of passing laws to enforce deficit-cutting and ratifying a European budget responsibility pact, given the opposition right would struggle to oppose the measures.

The Socialist Party has no guarantee of winning outright control of the lower house and may depend for a majority on the support of the Greens, or the more radical left-wingers and communists of the Left Front.

That would not hamstring Mr Hollande as long as the Socialists win enough seats to limit the leverage of the Left Front, given the Greens should prove a loyal parliamentary partner. Analysts see this as a plausible scenario.

While the prospect of hardliners winning greater influence may alarm some in the financial markets, the Socialists mastered such a partnership with aplomb when last in power, and even kicked off the privatisation of Air France under the tenure of a communist transport minister, Jean-Claude Gayssot. That was part of a wave of privatisation launched under a left-wing coalition the Socialists led between 1997 and 2002, under the conservative presidency of Jacques Chirac, with the Greens and communists as junior partners.

"It’s hard to think of anything as poisonous that they’d be asked to swallow under Hollande,” said Paul Bacot, a professor at the Institute of Political Studies in Lyon.

A week from the opening round of the election, the only near certainty is that Mr Hollande, itching to start work in earnest, will not be plunged into a paralysing "co-habitation” with the UMP party of his conservative predecessor, Nicolas Sarkozy.

All polls show the UMP set to lose control after 10 years in charge. However, the result is unlikely to be a rout, even if it put s the UMP at risk of a break-up due to internal power struggles and mounting pressure from the far-right National Front.

Christophe Borgel, one of the Socialists’ chief election strategists, hopes his party will replicate the voter shift that led to Mr Hollande unseating Mr Sarkozy on May 6 with 51,6% of the vote, largely due to frustration over Mr Sarkozy’s style and his failure to bring down unemployment.

Based on the number of constituencies that backed Mr Hollande, that would give the left about 333 of the 577 seats, he says, comfortably above the 289 seats that make a majority.

"The higher the number, the higher is the share taken by the Socialists,” said Guillaume Bacheley, a party spokesman. In line with party policy, he refuses to say anything that could alienate the Socialists from the other left-wingers whose co-operation may be needed in the years ahead.

A BVA poll published on Friday showed the Socialists taking 33% of the vote versus 32% for the UMP, with the Greens and Left Front taking 4% and 9% for a grand total of 46 % on the left. BVA estimates the Socialist Party is in a slightly stronger position than when it last took power in parliament in 1997, arguing its projected performance has strengthened as poll day nears while that of all other groups has stagnated or retreated from previous surveys.

If the Socialists land 289 or more seats, Mr Hollande and his government will be able to proceed unfettered with a programme mix ing targeted spending with a commitment to balance the public finances of Europe’s second-largest economy by 2017.

If they fall short by a small margin, the first port of call will be the Greens. The two parties have already agreed on an election pact under which the Greens, who have two ministers in the interim government, have Socialist backing in 60 constituencies, of which 20 or so are seen as winnable.

Should that not prove sufficient, the Socialists would be left counting on the backing of the Left Front coalition, which stands far to the left of Mr Hollande, to the point where its leader, firebrand former presidential candidate Jean-Luc Melenchon, says he would refuse any role in government. The Left Front is likely to back the Socialists when they go to parliament in the weeks ahead to repeal a last-minute law by Mr Sarkozy for an October rise in VAT sales tax and to seek higher taxes on the wealthy and companies.

Where the Socialists and the hardliners are most at odds is over relations with the rest of Europe and Mr Hollande’s commitment to steadily reduce the public deficit over his five-year term.

Mr Hollande is under pressure from his euro-zone partners to pass a "super” law committing the government to steadily reduce the deficit and also to ratify the fiscal pact agreed on by most European Union leaders earlier this year.

That legislation is likely to be opposed in parliament by hard leftists, but is assured safe passage as centrists and conservatives are unlikely to vote against it.

Mr Sarkozy’s government and the UMP pilloried the Socialists for months over Mr Hollande’s refusal to back the writing of a budget balance rule into the French constitution.

That means the conservatives are unlikely, says Mr Bacot, to trip Mr Hollande up on a bill that does much the same thing.


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