French Socialists vow reforms after big poll win

PARIS Mon Jun 18, 2012 9:06am EDT

1 of 14. Supporters of Marine Le Pen, France's National Front leader and candidate for the legislative elections, react after their candidate lost in the run-off election in Henin-Beaumont June 17, 2012.

Credit: Reuters/Jean-Yves Bonvarlet

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PARIS (Reuters) - A resounding Socialist victory in weekend parliamentary elections will allow President Francois Hollande to press ahead with reforms to tame France's deficit and promote economic growth in Europe, a senior minister said on Monday.

Final results from Sunday's ballot showed the Socialists and their affiliates had won 314 seats, comfortably exceeding the 289 needed for a majority in the National Assembly and freeing them from reliance on the anti-austerity and Euroskeptical far left.

With the Senate upper house already controlled by the center-left, the Socialists are now turning their attention to a special parliamentary session next month to push through budget legislation, including tax rises for large firms, particularly banks and energy companies.

The measures are part of Hollande's dual drive to balance France's budget by 2017 while persuading Europe's paymaster Germany to back his call for a growth stimulus package of some 120 billion euros ($152 billion) for Europe.

Inheriting a stagnant economy and unemployment running at a 13-year high of 10 percent, Hollande faces a delicate balancing act to prevent contagion from the deepening crisis in Spain and Italy spreading to the euro zone's second-largest economy.

Appearing to prepare the nation for possible tough measures, Interior Minister Manuel Valls said the government would stick to its pledge to cut the deficit while honoring promises to raise spending on education and security.

With growth at a standstill and the European Commission warning that France needs to trim spending to meet its 2013 deficit goal, analysts see some belt-tightening necessary. The country has one of the highest levels of state spending in Europe and posted a budget deficit of 5.2 percent of GDP last year.

"We need to sort out this country: every Frenchman will need to make an effort but fairly, via a tax reform. It will be difficult but that is the task facing us," Valls told RTL radio.

BNP Paribas economist Dominique Barbet said the Socialist majority - which came as the pro-bailout New Democracy narrowly won a Greek election - could allow France to implement structural reforms and austerity measures which would otherwise have been blocked by the far left.

The government has commissioned a thorough review of its finances by the state auditor, which has repeatedly warned of overspending in recent years. Many observers expect Hollande to use this to water down his campaign spending promises.

A spokeswoman for the audit office said the report had been postponed until July 2-4 from an initial release date of June 28 to fit with the agenda of Prime Minister Jean-Marc Ayrault, who will detail government plans in a July 3 speech to parliament.

That allows the government to postpone a difficult discussion of how it intends to compensate for the decrease in tax revenues until after a June 28-29 EU summit where Hollande will press leaders to back his growth pact for struggling euro zone economies.

"COMPETITIVENESS DEFICIT"

Valls said that a resurgence by the extreme right - which returned to parliament for the first time since the mid-1980s with three seats - was due to widespread disenchantment with the economic situation, which could be seen across Europe.

"We need to mobilize our European partners because piling austerity on top of austerity will lead to tragedy and a deep rift between Europeans and their politicians," he said.

Hollande was expected to press the case for growth measures at a summit of G20 leaders in Mexico on Monday.

He travels to Rome on Friday to meet Italian Prime Minister Mario Monti, German Chancellor Angela Merkel and Spanish Prime Minister Mariano Rajoy and discuss closer political union and unified bank regulation in Europe, also on the EU summit agenda.

Amid rising tensions between Paris and Berlin, Merkel has rebuffed Hollande's calls for joint euro zone bonds to resolve the crisis. She bluntly warned on Friday that France needed to urgently look to its own flagging competitiveness.

"The question everyone is asking is what will France do in terms of structural reforms and policies to stimulate growth since there is a broad agreement that France has a serious competitiveness deficit," said Jean Pisani-Ferry, director of the Bruegel think-tank in Brussels.

Government spokeswoman Najar Vallaud-Belkacem welcomed New Democracy's victory in Greece's parliamentary election, which relegated the anti-bailout SYRIZA party to second place and gave some relief to financial markets on Monday.

"We are pleased that they have chosen the euro," she said. "We are ready to help them with this. President Hollande fought to put growth back on the European agenda precisely to send a positive signal to the Greeks."

Ayrault is expected to name a permanent cabinet on Thursday, with no major changes expected from the interim team in place since mid-May, after top ministers won their parliament seats.

The conservative UMP party, whose weight in the National Assembly has plunged by more than 100 seats to 194, seems destined for a leadership battle after former leader Nicolas Sarkzoy lost May's presidential election.

($1 = 0.7921 euros)

(Additional reporting by Emmanuel Jarry; Editing by Alessandra Rizzo)

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