Heeding Political Pressure, France Will Avoid Reforms

5 MINS READMar 20, 2015 | 19:37 GMT
Heeding Political Pressure, France Will Avoid Reforms
(Sean Gallup/Getty Images)
French President Francois Hollande prepares to speak to the media before talks with German Chancellor Angela Merkel in Berlin.

Local elections in France scheduled for March 22-29 are expected to confirm the far-right National Front party's emergence as a major political force while the ruling Socialist Party performs poorly. This will shape the rest of President Francois Hollande's term.

The government's passage of an economic reform package known as the Macron Law has convinced the European Commission to give France two more years to bring its deficit to below 3 percent of gross domestic product. However, the next reforms on the agenda will not be enough to revive the stagnant French economy, nor will they successfully lower unemployment. During the next few months, Hollande will try to appease dissent within his majority by implementing social measures and postponing any structural economic reforms. The gap between Germany and France will keep growing, but Berlin will need Paris' backing in negotiations with Athens after the end of Greece's bailout program in late June, and thus Berlin and Brussels will limit the pressure put on Paris. Meanwhile, the National Front will continue to gain ground ahead of the next presidential election, slated for 2017. 

France has not registered a budget surplus since the 1970s. This structural weakness became apparent when the recent global financial crisis threw the country into a recession, followed by economic stagnation. Similar to other European economies, France's GDP is expected to see some timid growth in 2015 (1.1 percent, according to the Organization for Economic Cooperation and Development) as a result of low oil prices and interest rates, along with the European Central Bank bond purchases program known as quantitative easing. However, France will continue to see low levels of economic activity, and unemployment will remain above 10 percent.

Hollande spent the first two years of his term trying to avoid spending cuts and relying mostly on tax hikes. But in late 2013, under pressure from the European Union, Paris announced a series of spending cuts that generated friction within the ruling Socialist Party. The policy change was confirmed in January 2014, when Paris announced a program of spending cuts worth 50 billion euros (about $54 billion). Some of the measures included in what is now known as the Macron Law were an increase of the number of Sundays that shops in the non-food sector are allowed to be open, steps to boost competition in the public transportation sector, and reforms to reduce bureaucracy in the Labor Court. The legislation created dissent among the Socialists and led to a rebellion from within the majority, forcing the government to pass the bill through the use of a special decree (Article 49-3 of the French Constitution) that allows it to bypass Parliament.

Along the way, Hollande lost the French people's trust. His popularity fell to 13 percent, a record low for a French president. The short boost in approval (25 points) he experienced following his management of the Charlie Hebdo attacks has waned, with the most recent polling showing support from only 26 percent of the French public. Not only did Hollande frequently fail to deliver on his campaign promises, but he also pushed for policies closer to the center-right Union for a Popular Movement's orientation and thereby lost support from a segment of the Socialist Party's traditional electoral base. Passing the controversial Macron Law in order to ensure that the European Commission would postpone sanctions confirmed this pattern while feeding the National Front's anti-establishment arguments.

The combination of economic malaise and unpopular governments has led to the rise of anti-establishment parties across Europe. France is no exception. High unemployment and economic stagnation have provided fertile ground for the National Front, especially in regions like the industrial north (traditionally a Socialist stronghold), where unemployment hovers around 13 percent. The National Front has seen its support rise considerably and has performed better than ever in recent elections: It won 11 cities in municipal elections last March and triumphed in the European elections in May, sending 24 European Parliament members to Brussels.

Internal and External Friction

In addition to losing the consent of the French populace, the government is grappling with dissent within the Socialist Party. The rebels oppose any kind of reform that includes spending cuts, reasoning that such cuts would undermine social advantages. The decree used to pass the Macron Law cannot be used again during this parliamentary session, which ends in June, and Hollande will need to appease the rebels if he hopes to reunite with them. Thus the government will not try to implement the structural reforms called for by Brussels. Rather, Hollande will focus on superficial reforms, including the already emasculated labor reform — the most controversial measure of which was included in the Macron Law — and social measures in the education and health systems that will involve limited public spending.

Such a move will lead to frictions with Germany and other EU member states that have already implemented painful austerity measures and will be frustrated with the special treatment given to France. However, Germany's focus is currently on Greece, and German Chancellor Angela Merkel will need French backing in negotiations with Greece's ruling Coalition of the Radical Left party, known as Syriza, at the end of the bailout program in late June. Hence, Paris will not face the menace of potential sanctions in the short run, so long as it finds the 4 billion euros in savings by June 10 needed to satisfy the European Commission. The government will search for the savings by hunting down large corporations using tax havens and in the outcome of the quantitative easing program, which will create revenue for the state.

A Political Shift Ahead

This avoidance strategy will enable the government to stay in place by keeping social unrest at manageable levels in the short run. However, postponing reforms will not improve the French economy, and the National Front will reap the benefits of the government's inability to reduce unemployment. National Front leader Marine Le Pen will build on this dissatisfaction by stressing her party's anti-establishment and anti-EU rhetoric. The National Front's credibility will continue to rise in coming elections, including regional elections in December. As a result, the party will have more elected officials able to communicate its messages while gaining experience. This will make Le Pen an increasingly influential candidate in the 2017 presidential vote.

As Stratfor noted with the emergence of newcomer parties Podemos and Ciudadanos in Spain, the more the moderate parties feel threatened by the radicals, the more they will imitate the radicals' agenda. Hence, in the months leading up to France's presidential elections, the Socialists and the Union for a Popular Movement will both be tempted to compete with the National Front by toughening their stances on European integration and other issues, such as immigration. As a result, the whole French political spectrum will move closer to nationalist policies. The main challenge to the European Union will then come from its very core, with an increasingly nationalistic France contesting the bloc's fundamental principles.

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