The German response to French president François Hollande’s reinvigorated campaign against austerity in Europe has been underwhelming. Commentators in the only major eurozone economy that posted modest growth in the first three months of this year recognize that the Socialist Party leader’s rhetoric is mainly aimed at his own base.
While the French president refuses to describe his administration’s budget policy as “austerity,” it is aimed at fiscal consolidation, however slowly. Far leftists, including Hollande’s own industry minister, Arnaud Montebourg, would rather the government borrowed more to finance stimulus spending. “What is the point of fiscal consolidation if the economy goes to the dogs?” he wondered during an interview with Le Monde last month.
Hollande similarly blamed austerity during a news conference in Paris on Thursday for pushing European economies into recession yet maintained that budgetary “rigor” — largely tax increases in his country — is needed to keep investors’ confidence and therefore French borrowing rates low.
Die Welt‘s Sascha Lehnartz suspects that by positioning himself as a “fighter against the menace of Merkel’s diktats,” referring to the German chancellor who is seen as Europe’s main champion of austerity, Hollande “gains leeway at home that he can use to enact unpopular reforms” in the labor market and pension system.
The French leader must recognize that his counterparts in the wealthier north of Europe are unlikely to accept economic governance in the eurozone, the pooling of national debts or more European investment to combat youth unemployment, initiatives he called for on Thursday, when such proposals would effectively entail the permanent subsidizing of weaker states in the Mediterranean. But by campaigning for them nevertheless, he proves his left-wing credentials and can implement economic and fiscal policies that his own party would otherwise consider too right wing.
Although not all of Hollande’s party is so critical of German policy. The Frankfurter Allgemeine‘s Christian Schubert points out that for moderate Socialists, Germany actually “serves as an example in the effort to become more competitive.”
It was the Social Democrat chancellor Gerhard Schröder who enacted labor market reforms in the last decade that allowed Germany to remain a strong exporting economy. Manufacturing in France, by contrast, is declining. Hourly labor costs there, at €34, far exceed the European average of €23. France’s 34.4 percent corporate tax is more than twice as high as Germany’s 15.8 percent rate while investment income is set to be taxed at the same rate as regular income, further discouraging private-sector investment.
Labor market reforms enacted by the French parliament on Tuesday only slightly eased rigid job protection rules. Further liberalization is needed to persuade businesses to raise hiring. Hollande also seeks another increase in the pension age while he campaigned last year to bring it down to sixty after conservatives had raised it to 62.