Analysis: French vote may change economic team, not course

PARIS Wed Mar 28, 2012 12:00pm EDT

Bodyguards stand near the stage where France's President and UMP party candidate for the 2012 French presidential elections Nicolas Sarkozy delivers a speech at a political rally in Saint-Herblain, near Nantes, March 27, 2012. REUTERS/Philippe Wojazer

Bodyguards stand near the stage where France's President and UMP party candidate for the 2012 French presidential elections Nicolas Sarkozy delivers a speech at a political rally in Saint-Herblain, near Nantes, March 27, 2012.

Credit: Reuters/Philippe Wojazer

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PARIS (Reuters) - The man who could become France's first Socialist president in nearly two decades may have turned his campaign rhetoric against bankers and the rich, but in office his policies would be guided by advisers steeped in commerce and public service.

Francois Hollande met some of his most trusted counselors more than 30 years ago at the Ecole Nationale d'Administration (ENA), the civil service college that turns out industry leaders and top public officials.

The architect of Hollande's presidential program and his closest adviser, Michel Sapin, has been a friend since 1977 when they shared a room during their military service before ENA. Sapin, Francois Mitterrand's finance minister during the 1992-1993 European currency crises, comes from the Socialist party's moderate wing, like Hollande himself.

"Our priority should be making it easier to do business in France," said Sapin, pledging to slash the red tape holding back French companies.

Under Mitterrand, Sapin was credited with battling corruption and seeking to improve dialogue between unions and business. One colleague who worked with Sapin on Hollande's program says a new Socialist government could seek to write into the constitution an obligation for companies to consult trade unions on business decisions, based on the German model.

Sapin, 59, is also capable of reaching out to left-wing Socialists, embodied by party leader Martine Aubry, Hollande's unsuccessful rival in last year's Socialist primary.

Another influential member of Hollande's year at ENA, which took the class-name "Voltaire" after the Enlightenment philosopher, is Jean-Pierre Jouyet, now head of the financial markets regulator. An expert on European affairs - having served as chief aide to EU Commission President Jacques Delors - and a former head of France's treasury, Jouyet has advised Hollande privately. But a period spent as junior minister for European affairs under conservative President Nicolas Sarkozy probably rules him out of a government position if the Socialists win.

The third member of the "Voltaire" circle is lawyer Dominique Villemot, Hollande's speechwriter and author of his "generational contract" scheme to tackle low employment among the old and young by twinning them at work.

Like several of those close to Hollande, Villemot and Jouyet are not just ENA graduates but "inspectors of finance" - an elite corps formed from the cream of ENA's talent. Designed to ensure government efficiency, the corps has been compared to a consulting firm within the state.

"One of the good, or maybe bad, aspects of France is the solidity of its administrative elites," said Elie Cohen, an economist who has advised Sarkozy and Hollande. "Politicians have programs but then the inspectors of finance say 'no, that's not possible, it's technically not feasible'. And that's it."

"FRANCE WILL REMAIN THE SAME"

The possibility of Hollande winning the May 6 presidential runoff has raised concerns in some quarters that an end to Sarkozy's partnership with conservative German Chancellor Angela Merkel could leave the euro zone rudderless.

But behind Sarkozy, three officials have orchestrated France's response to the crisis, led by the secretary-general of the president's office, Xavier Musca, dubbed the 'real finance minister' by some colleagues, and presidential economic advisor Emmanuel Moulin.

Whoever wins in May, Musca is expected to depart as sources in the Sarkozy camp say he is tired and wants a change. Should Hollande win, Moulin is expected to go too.

But the third member of the triumvirate, the director-general of France's Treasury Ramon Fernandez, could well stay.

Fernandez is not viewed as partisan and is held in high esteem by all sides. Under his stewardship, France has quietly achieved many of its aims, often overcoming skepticism from European paymaster Germany. Those aims included not just tempering the role of private creditors in a Greek bailout, but achieving more ECB action in combating the debt crisis and widening the powers of the euro zone rescue fund. Other ideas, like allowing the rescue fund to access ECB liquidity like a bank, have been blocked by Berlin.

European counterparts say Fernandez's stamina and technical prowess helped get France's voice heard during marathon negotiations to resolve the debt crisis.

"I always say Ramon is one of the best amongst us," said Jorg Asmussen, the European Central Bank's executive board member charged with international affairs, who sat for three years with Fernandez on a steering committee for euro zone policy. "Ramon can negotiate all night long. He doesn't get tired and doesn't need breaks."

While no immediate change at the top of Treasury is likely, one person mentioned as a future head is Odile Renaud-Basso, deputy head of EU Council President Herman van Rompuy's cabinet. Her schooling in the art of European compromise would prove useful if Hollande presses ahead with plans to renegotiate an EU budget pact signed by 25 states.

If Hollande wins, some analysts expect Germany will be willing to add language to the pact to emphasize the need to stimulate growth - similar to the cosmetic changes Socialist Lionel Jospin secured to the Stability and Growth Pact in 1997 when he became prime minister.

But fundamentally, little will change. An Hollande government is expected to maintain France's traditional resistance to moving towards more federalism in Europe.

"My experience over the past 30 years of European involvement is that it doesn't matter who's in the driving seat in France - the left or the right - the position remains the same," said Michel Petite, former head of the EU's legal service and now an adviser to law firm Clifford Chance in Paris.

"Europe only advances when there are crises, when it is impossible for it to do otherwise."

SOCIALISM'S YOUNG GUNS

Despite Hollande's rhetoric, there is broad agreement with Sarkozy on three key themes: the need to bring down the deficit, the need for structural reforms to improve economic competitiveness and the need to improve the labor participation rate.

Behind the Socialist party heavyweights who would fill top cabinet posts - like Sapin, Aubry and former Prime Minister Laurent Fabius - Hollande is preparing a new set of young minds to put his aims into practice.

"These will be technocrats with experience in the public and the private sector. People with the talent of Xavier Musca and Emmanuel Moulin: Hollande will pick people like that," said one of his close advisers.

Karine Berger, a former economist at credit insurer Euler Hermes, is regarded as influential within Hollande's economic team. She has already hinted that spending cuts may be needed to help France meet its deficit targets. Close to Hollande's campaign manager Pierre Moscovici, Berger has also written extensively on the need for more industrial investment to power competitiveness and emulate the "Glorious 30" boom years of 1945 to 1975.

Another close adviser with experience of the private and public sector is Emmanuel Macron, a former Treasury official turned investment banker at Rothschild & Cie. Macron worked on a Commission for Growth appointed by Sarkozy.

"Macron is the inspector of finances closest to Hollande," said another economist who has advised both the Socialists and Sarkozy. "He'll be very important if Hollande wins."

One Hollande aide said young faces would not only be working behind the scenes but would end up in ministerial roles.

"Francois Hollande knows he can't have a government with too many people who are associated with the Mitterand era. That will affect the makeup of the cabinet," the aide said.

Among the candidates could be Guillaume Bachelay, a former aide to Fabius and Aubry and a rising star on the left of the party who worked on the industrial aspects of Hollande's program.

Hollande has the backing of a group of Socialist business leaders, including Matthieu Pigasse, the head of investment bank Lazard in France and a shareholder in Le Monde newspaper. Pigasse, 43, was a key ally of former International Monetary Fund chief Dominique Strauss-Kahn.

The brains trust of economists supporting Hollande includes Harvard professor Philippe Aghion, Thomas Piketty, and Gilbert Cette. In a book published last year, Piketty advocated a "fiscal revolution" merging taxes on income and investment.

Some close to Hollande, however, have voiced frustration that the candidate appears not to be listening, sources say.

"Hollande is very much like Mitterrand: he operates at the intersection of several circles of advisers. He does not want to be controlled by one economist," said Cohen.

"There's the circle of his old friends from the Voltaire class, the circle of official experts around Moscovici, another circle of Socialist Party specialists. But Hollande himself is the one who synthesizes all these ideas."

(Additional reporting by Catherine Bremer and Geert de Clercq; Editing by Paul Taylor and Janet McBride)

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