Hollande’s scooter goes into neutral

As France gears up for presidential campaign, the Socialists lose their appetite for a painful economic overhaul.

PARIS — France’s Socialist government has found a simple message about its economy that seems to please everybody, from voters to critics in Berlin and Brussels: We’re working hard to reform the country, and we won’t let anything stand in our way.

But the rhetoric is mostly out of tune with what’s actually happening.

With a presidential election just two years away, Socialist Party insiders told POLITICO that President François Hollande’s attention has shifted away from an economic overhaul to more immediate concerns such as trying to improve his low approval scores, courting young voters and unifying a fractious, rebellious left-wing parliamentary majority.

On the economic front, Paris hopes that its luck will turn — and data this week showing the French economy grew by 0.6 percent in the first quarter of 2015 (better than Germany!) suggested that could happen, at least to a limited extent. Hollande is using the breathing space to push social reforms, like a controversial overhaul of primary schooling, to rally his left-wing base.

But meanwhile, major structural changes touted by the government — like a review of the 35-hour work week, and much-needed tweaks to the labor code to fix a moribund job market — are on hold, and the will to attempt bold measures that could irk the unions and provoke the left-wing rebels, is lacking.

The European Commission, which otherwise applauds Economy Minister Emmanuel Macron’s liberalization bill, is urging France to go further: to pursue labor reforms, cut down on employer costs directly and reduce unhappy “threshold effects” in companies, according to recommendations published on Wednesday.

But Europe’s executive arm is likely to find that its recommendations are in vain. Here are a few reasons why France’s much-touted reform drive isn’t bound to deliver the changes it wants:

Campaigning for the 2017 presidential election is already under way and it’s the only show in town

Hollande is on a non-stop media offensive. In the past few weeks, coinciding with his presidency’s 3rd anniversary, Hollande has:

• appeared on a mass-market TV talk show, where he debated with young people
• met again with a selection of young people to discuss the state of France
• opened the doors of his presidential office to two prime-time news programs, one of which used drones to film the Elysée presidential palace
• seen several books (both illustrated and not) published about his presidency
• promised minimum-wage workers a so-called “activity bonus” on top of their salary that will cost France about €4 billion per year in 2016 and 2017
• rushed to become the first Western head of state to visit Cuba following the thaw of relations with the United States

Slowly, his dismal approval rating has started to inch up, but it remains low at 27 percent, while Prime Minister Manuel Valls is doing slightly better with 40 percent support, according to a BVA/iTélé poll published on Saturday.

Hollande may merely be trying to keep up with rivals who are hot on the campaign trail. Nicolas Sarkozy is holding public meetings nearly every week to try to drum up enthusiasm for a 2017 re-election bid.

On Monday night the conservative former president addressed a crowd of supercharged supporters at a gymnasium in Bondy, a tough suburb near Paris, with a speech that recalled his 2012 re-election campaign.

A hint of Sarkozy’s strategy heading into this one: Cast the widest possible net by appealing to all “Républicains”; tack a hard-right line on security, welfare abuse and the notion of French identity; and make one joke after the other about the hopelessness of François Hollande.

External pressure on France to reform has eased and Marine Le Pen is largely to thank for that

Two years ago the French government lived on tenterhooks waiting for statements from credit rating agencies, German central bankers or the European Commission. No longer.

While the world has largely lost interest in credit ratings, France’s toughest critics have changed their tone. There seems to be a consensus among German ministers and the European Commission to recognize French reforms as “steps in the right direction,” without calling too much attention to the fact that reforms already enacted have shown little or no impact on the economy.

France is still beset by unemployment above 10 percent, and it is lining up new spending measures like the “activity bonus,” despite having obtained three extensions from the Commission on a timetable to reach its deficit-reduction targets.

There’s little chance that France will face more pressure anytime soon. European Commission sources told POLITICO that France had expressed irritation at the tone and format of country recommendations, which it deemed too prescriptive and detailed.

The result is a document that is slightly less direct in the way it calls for reform with fewer areas addressed (gone are the recommendations for reform of the judicial system, for example). Economic and Monetary Affairs Commissioner Pierre Moscovici has said he would view any sanctions procedure against France as a failure on both parties’ behalf.  

One of the main reasons for the softer tone toward France is the rise of Marine Le Pen. The far-right leader’s victory in European Parliament elections last year and her continued popularity alerted Brussels and Berlin to the real possibility that she could seize power in two years’ time.

Across Europe, a rising wave of Euroskepticism in Britain, Italy, Spain and Greece has prompted critics to ease pressure on states where the anti-EU sentiment is strongest, lest the unthinkable happen and one of the far-right groups gets elected.

Hollande has to face left-wing rebels at a Socialist Party congress in June and doesn’t want reforms ruining the party

In February, Prime Minister Manuel Valls used an executive decree to force a bill on limited deregulation (main points: freeing up inter-city bus transport and letting stores open on 12 Sundays per year instead of seven) through parliament against opposition from left-wing rebels.

Valls and Economy Minister Macron promised the rebel backbenchers that they would use the decree again to pass further reforms, such as an overhaul of the labor market. France’s last attempt to do so, in January 2013, produced inconclusive results — as a government-commissioned report to be published later this year will show, according to a source in the trade union movement familiar with its contents. For example, according to the source, the report notes that the 2013 reform let companies create “accords de maintien dans l’emploi” — a device that allowed them to reduce hours and work time in exchange for keeping people on staff. This was supposed to be a great leap forward, but has been used a total of six times.

But the reform of labor rules needed to make the cost of dismissals more predictable — the main measure requested by the Commission and most economists — is unlikely to happen anytime soon. “That’s a subject that we’re unable to agree upon right now,” Socialist MP Christophe Caresche said.

The reason is that despite his prime minister’s tough talk, Hollande is wary of any reform that could embolden the rebel faction ahead of a Socialist congress on June 7. The government needs as much support as it can get from the party faithful for its policy line, which has to be voted upon against competing “motions” — or policy proposals.

Hollande’s camp faces tough opposition from some 40 rebels backed up by former Economy Minister Arnaud Montebourg, who left the government last year after an open clash with Hollande over economic policy.

“The government doesn’t want to raise any red flags during the congress, because that will just be ammunition for the leftist fringe,” Caresche added.

Even after the congress, it seems likely the government will stick to a piecemeal approach to reform that avoids a major dustup in parliament, or on the streets of French cities. Regional elections are coming up in December and after that, attention will turn firmly to the presidential race, leaving few windows for reform.

Everyone expects the wider economy to lift France out of its doldrums

Nobody can blame Hollande for lacking optimism. Two years into his term, he announced that “recovery was at hand” for France. Yet unemployment continued to rise, growth remained flat and companies still complained of stifling taxes and regulations.

Now the Socialist government is betting that France will catch a break from the weakening of the euro against the dollar, lower gas prices and an improving European economy. The International Monetary Fund (IMF) expects the French economy to grow by 1.1 percent this year, an improvement on the lackluster performance of the past few years but nevertheless behind the eurozone and less than the 1.6 percent seen for Germany.

Crucially for Hollande, who has hinted that he will not run for re-election if unemployment does not start to fall before the end of his term in power, the projected growth next year is lower than the 1.5 percent rate that economists consider the minimum in order to create jobs. The IMF expects 1.6 percent next year, which would be just enough.