Amid Mixed Signals From Hollande, France and Germany Drift Apart

Amid Mixed Signals From Hollande, France and Germany Drift Apart

At the conclusion of his first year in office, French President Francois Hollande is facing criticism from all sides. Hollande was elected as an almost accidental president in May 2012 in the post-crisis wave of government changes across Europe. His promises to renegotiate German Chancellor Angela Merkel's hard-fought European Union budgetary pact—and to counter austerity measures by increasing public sector expenditures and imposing sharp tax hikes on business—made a deterioration in the French-German partnership, clearly visible over the past year, all but inevitable.

Despite his campaign rhetoric, however, Hollande’s first year in office has been marked by conflicting policy messages. Plagued by endless mishaps and scandals, surrounded by an inexperienced Cabinet that spouts protectionist rhetoric while trying to reassure investors to remain in France, afraid of alienating his Socialist Party base and unable to placate the center-right opposition, Hollande finds himself at the mercy of the European Union and the markets’ continued indulgence of France's relatively strong fundamentals.

But while markets have yet to turn on France, Hollande has not proved convincing as a reformer. He imposed fiscal discipline in an attempt to reduce France’s budget deficit, combining increased taxes with a five-year plan to lower social charges on business that nonetheless offered little immediate relief. A modest package of labor reforms that recently passed was but a first step to loosening France’s historically restrictive hiring and firing laws. And in the past few weeks, Hollande has laid out the case for further labor and pension reforms, and has tried to explain his plans to combat France’s high unemployment—11 percent versus 6 percent in Germany—and near-zero growth, in part the result of a sharp loss of confidence among investors and the business community. A 10-year plan to reduce youth unemployment, combined with long-term investment programs in infrastructure, digital energy and research and development, are worthy goals, but the specifics are lacking. Meanwhile, on the eve of negotiations for a U.S.-EU trade pact, proposals to tax digital devices that air French music and film content and a push for a revived "cultural exemption" clause in any eventual trans-Atlantic deal have added to the list of mixed messages.

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