Ireland, Spain Cast Doubt on Europe’s Austerity Pact

When Europe’s leaders committed themselves to stricter budget discipline in December, it was hailed as a victory for prudent Germany which had insisted that the only long-term solution for the continent’s debt woes was fiscal consolidation. Three members of the currency union could yet challenge that proposition.

Irish voters will have their say on the fiscal treaty in May or June. Where their government, composed of conservatives and Social Democrats, supports the treaty and likes to portray the referendum as a vote for or against Europe, the left-wing opposition has dubbed the fiscal compact an “austerity treaty” and will seek to rally nationalist sentiment against what it perceives as Germany dictating fiscal policy to the rest of the eurozone.

The threat of an Irish “no” previously necessitated the rewriting of a European constitution treaty in 2005 after Dutch and French voters rejected the charter in referendums. The Irish voted against the revised Lisbon Treaty in 2008 but voted for it in a second referendum a year later. Read more “Ireland, Spain Cast Doubt on Europe’s Austerity Pact”

Hollande Proposes Tax Hike, Sarkozy Narrows Gap

French president Nicolas Sarkozy narrowed the gap in opinion polls between him and his Socialist rival, François Hollande, for April’s election.

The embattled conservative president, who is fighting for reelection at a time of mounting economic anxiety in France, would win 27 percent of the vote in a first round compared to 31 percent for Hollande according to a recent survey. In the runoff, which is scheduled for May6, the incumbent would trail his opponent by 16 points.

Although he lacks ministerial experience, Hollande is widely liked and promises to increase government spending on education and job training programs. He would renegotiate Europe’s fiscal pact, which requires a deficit under 3 percent of gross domestic product in 2013 and a balanced budget in the long run, and would raise taxes on the very wealthy.

In Paris this week, Hollande proposed to levy a 75 percent tax on incomes over €1 million. He said it was simply a case of “patriotism to accept to pay extra tax to get the country back on its feet again” and argued that it would send “a message of social cohesion” after five years of conservative policies which supposedly favored the rich.

The socialist candidate previously called for the introduction of a 45 percent tax rate on incomes over €150,000. The top income rate is now 40 percent while social taxes that finance health insurance and pension payments are automatically deducted from people’s salaries. There is also a surtax on Frenchmen’s wealth if they own more than €790,000.

The president’s party, which is currently in government, hiked taxes in August and again in November of last year in an attempt to balance the budget. Consumption taxes on liquors, tobacco and soft drinks were raised as was the lowest value-added tax bracket from 5.5 to 7 percent. The top corporate tax is among the highest in the world at 34.4 percent. Total tax revenue was equivalent to nearly 45 percent of France’s total economic output in 2010. Government spending as a share of GDP was nearly 55 percent.

Addressing supporters in the southern city of Montpellier, Sarkozy criticized Hollande’s tax plan. He argued that “tax policies that discourages work, that discourages initiative, isolate France from the rest of the world.”

I believe in paying more to those who work more. I believe in the choice of rewarding talent. Rewarding merit and valuing success are principles that have always been dear to the republic.

Specifically, he proposed a 25 percent pay raise for teachers who agree to work longer hours. This is contrary to Hollande’s promise to hire an additional 60,000 teachers during his first term in office.

The president also hopes to give employers more flexibility to increase working hours in the private sector although he has stopped short of advocating an end to his nation’s treasured 35-hour workweek.

French employees also enjoy five weeks of legally mandated vacation, besides national holidays, and compensatory time off for working overtime. That should amount to some fifty days of paid vacation per year but combined cleverly with “bridges” over workdays that fall between off days, most French actually have a week off nearly once a month.

As a result, French workers are less productive than most of their European counterparts. An hour of work costs $43 on average in France compared to $36 in neighboring countries.

Sarkozy Rival Says “Finance” His Enemy

France’s Socialist Party presidential candidate said the incumbent, Nicolas Sarkozy, wasn’t his opponent rather “the world of finance” which he promised to rein in by separating banks’ loan making businesses from their “speculative” operations, enacting a financial transaction tax and limiting big bonus payouts.

In his first major policy speech since winning the nomination in an open primary in October, François Hollande vowed to “change the destiny” of France with an education policy to reduce the number of young people who leave school without a diploma.

He also said to favor an accelerated withdrawal of the 4,000 French troops who are currently serving in Afghanistan, two days after four soldiers were killed on base by an Afghan trainee.

“Leading this country means having to make difficult decisions,” he said, “not simply reacting to a tragedy.” It was a reference to President Sarkozy’s suspension of the French mission in Afghanistan in the wake of the shooting. Hollande nevertheless insisted that the French contribution to the NATO war effort was “finished.”

France’s credit rating was downgraded by an American rating agency earlier this month as the government has struggled to balance its books. The conservatives have introduced billions worth of austerity measures in a response to the European debt crisis but they have mostly been composed of tax increases which will reduce the state deficit in the short term but could inhibit business activity and growth in the long run. Necessary entitlement and labor market reforms have been postponed.

Hollande was silent on necessary health-care spending and pension reforms but promised to balance France’s budget by the end of his first term in 2017 which is a year later than the current government has pledged to eliminate its shortfall.

The candidate’s attack on the banking sector came a week after he promised to be “tough on the dominance of finance, tough on growth policies, tough on new instruments such as the public investment bank, tough on tax so that we can make it serve production and serve justice.”

Similar rhetoric is deployed by left-wing politicians across Europe who lament that the financial industry has yet to pay for the role they believe it played in fomenting the credit crunch of 2008 which anticipated the present recession.

Despite a mild surge in recent polls, Sarkozy lags far behind Hollande who hopes to become the first socialist French president since François Mitterrand left office in 1995. Mitterrand, too, rallied against the “power of finance” which he once claimed “rots through to the very conscience of man.”

The incumbent splits the right-wing vote with the candidate of the more populist Front national which appeals to blue-collar voters in particular. In a runoff against Hollande, Sarkozy would lose with 43 percent of the vote compared to 57 percent for his challenger.

French Socialists Elect Presidential Candidate

French socialists elected former party boss François Hollande to be their contender in next year’s presidential election. Hollande emerged as the candidate from two rounds of voting which pitted him against the more combative Martine Aubry in a runoff election on Sunday.

Hollande, who was perceived as the most electable of the left’s presidential hopefuls, led with nearly 57 percent of the vote Sunday night which prompted Aubry to concede defeat.

Nationwide, Hollande enjoys a 60 percent favorability rating which makes him by far the favorite for next year’s election. The incumbent, Nicolas Sarkozy, is unpopular while third party candidate Marine Le Pen, who leads the far-right Front national, doesn’t enjoy broad support although some polls earlier this year predicted that she could make a second round of presidential voting which would virtually ensure a socialist victory.

Presidential elections in France require a runoff between the two top tier candidates when neither wins an outright majority of the votes during the first round.

The political left in France is anxious for a presidential election victory after winning scores of local elections in recent years and securing, for the first time in more than half a century, a majority in the upper house of parliament last month.

There hasn’t been a socialist in the Élysée Palace since François Mitterrand left office more than fifteen years ago but no conservative president has been as consistently unpopular as Sarkozy. His administration’s failure to revitalize the French economy will likely dominate next year’s election struggle when immigration and security policy are expected to take a back seat.

Aubry, Hollande Face Off in French Primary Contest

Former Socialist Party boss François Hollande and his immediate successor, Martine Aubry, emerged as the frontrunners from a left-wing primary election in France on Sunday.

Hollande, perceived as the most moderate of opposition candidates to run against incumbent president Nicolas Sarkozy next year, won 39 percent of the vote, the Parti socialiste reported, after four-fifths of the two and a half million votes cast had been counted. Aubry gathered 31 percent. Because none of the candidates in the race won an outright majority, a runoff is scheduled for October 16.

Remarkable was the third place finish of Arnaud Montebourg, a far-left contender who rallies against capitalism and globalization. If Aubry captured his 17 percent share of the party vote, next week’s runoff could be a close one.

Montebourg hasn’t endorsed either of the two frontrunners yet. Read more “Aubry, Hollande Face Off in French Primary Contest”

French Socialists Promise Growth, Fiscal Restraint

France’s Socialist Party’s presidential hopefuls tried to convince voters on Thursday night that they could revive growth and would address the nation’s mounting debt burden without cutting spending.

Instead of promoting austerity like President Nicolas Sarkozy, whose governments is actually raising taxes far more than it’s reducing expenditures, the left’s presidential contenders steered clear of specific spending cuts during a televised debate and offered targeted stimulus to resuscitate the sputtering French economy.

At the same time, the candidates vowed no heavy deficit spending. “I won’t be president to push us back into debt,” said François Hollande, former Socialist Party boss, who was combative in an interview that preceded the debate but appeared managerial during exchanges with the other candidates which were altogether subdued in tone and light on substance.

The current party leader Martine Aubry said that she knows “how to say no,” to more public spending, presumably. She and Hollande are perceived as the frontrunners with Ségolène Royal, the socialist presidential candidate defeated in 2007, also running.

Hollande could win 40 percent of the left-wing vote according to a survey published in the daily Libération on the morning of the debate. Aubry lagged behind at 22 percent. Her campaign is geared to party activists, hoping to rally as many sympathizers as possible during the primary. Hollande, by contrast, presents himself as the moderate and more electable candidate. It’s a strategy that appears to be working although Aubry was calmer and almost presidential during Thursday’s debate.

Unlike most of her fellow contenders, Aubry didn’t focus on France’s dire fiscal situation but stressed that the priority should be reviving business activity. Eliminating special tax deductions and exemptions would be a first step toward making France more competitive, she suggested.

Boosting French competitiveness in Europe would also require raising the retirement age and introducing a forty-hour workweek however — two reform measure that are opposed by Aubry. In fact, she campaigns on bringing down the pension age back to sixty after it was raised to 62 by Sarkozy this year while as labor minister during the 1990s, she personally pushed for a 35-hour workweek.

During the debate, Aubry admitted that the pension age could probably not come down for everybody anymore but did vow to fight for people with low-income and labor-intensive jobs.

No French government has managed to balance its books since the 1970s, let alone produce a surplus, yet many of the left’s presidential contenders promised to rein in spending.

They all targeted banks and speculators. Royal said she would make them “obey” her and championed “fiscal justice,” or tax hikes for the wealthy although she praised French entrepreneurship at the same time. Hollande offered a “reform tax” but balked at questions about making the rich pay more. If he hopes to win over moderate votes who were previously rooting for Dominique Strauss-Kahn, he can’t afford to engage in class warfare.

The socialists suffered a major setback in May when the popular head of the International Monetary Fund was arrested in New York on an attempted rage charge which has since been dismissed. Strauss-Kahn won’t be able to stand for election anymore as the deadline for candidates to enter the race was in July.

The Socialist Party’s primary elections are scheduled for next month which, for the first time in its history, will be open to all French voters who declare themselves left of center. Unless one of the candidates wins an outright majority of the votes, which is unlikely, a runoff between the top two contenders will take place on October 16.

Whoever emerges as the candidate stands a good chance of ousting the incumbent president Nicolas Sarkozy as his Union pour un mouvement populaire is unpopular and has been so for many months.

The socialists most recently scored a victory against the conservatives in March when they attained majorities in virtually all of France’s cantons in regional elections. The UMP won 20 percent of votes cast nationwide at the time while the socialist won 36 percent. The far-right Front national gained 12 percent and even polled at 17 percent earlier this year.

Despite careful attempts at deregulating the behemoth French state early in his term, Sarkozy appeared to abandoned laissez-faire in the wake of he 2008 financial crisis and has since complained that nothing went to “labor” in the preceding decade when bankers supposedly enriched themselves at the expense of the working man.

The Front national is no less critical of “global liberalism” under the leadership of Marine Le Pen. Her protectionist economic policy seems part of an attempt to appeal to blue-collar voters which could enable the populist to steal crucial votes from Sarkozy’s UMP in elections next year.

For all the president’s denunciations of “freewheeling Anglo-Saxon capitalism,” French voters in 2012 may well prefer a genuine socialist over a poor imitation of one which could eat into Sarkozy’s centrist base.