Francois Hollande was elected France’s first Socialist president in nearly two decades on Sunday, dealing a humiliating defeat to incumbent Nicolas Sarkozy and vowing change in Europe
PARIS: One of Francois Hollande’s first challenges as France’s president will be reassuring European partners and the markets of his commitment to reducing the budget deficit in light of his campaign spending promises and sluggish growth. The Socialist has committed himself to bringing public finances back into balance by 2017.
But his refusal to endorse a balanced budget constitutional amendment and his spending promises which will be worth $26 billion a year by 2017 have sparked criticism at home and abroad.
In his final debate against outgoing president Nicolas Sarkozy, Hollande said that would require finding 90 billion euros by 2017, and proposed to get 40 billion in extra revenues and save 50 billion on the spending side. Hollande wants to limit spending growth to 1.1 per cent after inflation, compared to the current trend of two per cent.
On the revenue end, he is counting on a return to growth to boost the coffers and an increase in taxes, in particular on the well-off and big companies.
However, Hollande has little room for manoeuvre. “The major difficulty is growth,” said Henri Sterdyniak of the French Economic Observatory.
The IMF forecasts just one per cent growth for France next year while Hollande is banking on 1.7 per cent and hoping for two per cent per year from 2014.
There is little to be gained from increasing taxes on the rich, said the economist, as Sarkozy has already done a lot on this front towards the end of his mandate.
Hollande wants to introduce a 45 per cent tax rate on income above 1,50,000 euros per year and 75 per cent rate above 1.0 million euros. He also plans to increase the wealth tax and put a cap on tax breaks.
His advisors say Hollande will move quickly on the European level to obtain “tools to stimulate growth and jobs with investment” and consequently meet the budgetary reduction targets.
“The main goal in Europe and for France is to find the engines of growth in green industry, cutting energy consumption and urban renovation,” said Sterdyniak. “Otherwise we’re doomed.”