'En attendant Godot': Europe waiting for France

PARIS Tue Apr 1, 2014 8:53am EDT

France's President Francois Hollande speaks after he recorded a speech to be broadcast on French television at the Elysee Palace in Paris, March 31, 2014. REUTERS/Philippe Wojazer

France's President Francois Hollande speaks after he recorded a speech to be broadcast on French television at the Elysee Palace in Paris, March 31, 2014.

Credit: Reuters/Philippe Wojazer

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PARIS (Reuters) - As President Francois Hollande goes through the French mid-term ritual of sacking his government and appointing a new one, promising a dynamic "fresh start" after a local election drubbing, Europe is left as usual waiting for France.

Paris' partners in Berlin and Brussels are again wondering whether the French will ever keep their promises to the European Union to curb the budget deficit, reform a rigid economy and step up to the mantle of shared leadership of the euro zone.

Don't hold your breath, seems to be Hollande's answer.

The Socialist president coupled the appointment of business-friendly centrist Manuel Valls as prime minister on Monday with vague, contradictory promises on taxation and public spending in the euro zone's number two economy.

He would cut payroll levies for employers, but also for employees. He would cut public spending but also reduce taxes by 2017 - the year when he may seek re-election - and he would also boost purchasing power to provide more social justice.

Hollande put no numbers on those promises, but they would not seem to add up, so he dropped a strong hint that Paris would seek yet another delay in meeting its EU budget obligations.

"The government will also have to convince Europe that this contribution by France to competitiveness, to growth, has to be taken into account in respecting our commitments," he said in an artfully ambiguous passage of his address to the nation.

"Because reinforcing the French economy is the best way to change Europe's orientation."

In other words, if France can boost sluggish growth by easing the tax burden on business and households, it may not get its budget deficit down below the EU treaty limit of 3 percent of gross domestic product in 2015 as promised, but Europe should be grateful anyway for its contribution to the economy.

"TOTALLY USELESS"

Hollande has courted new Italian Prime Minister Matteo Renzi as a partner in seeking to loosen the straitjacket of EU fiscal discipline in return for economic reforms to spur growth.

The trouble is that Paris - with a history of non-compliance under conservative presidents Jacques Chirac and Nicolas Sarkozy - was granted two more years to get below the 3 percent target only last year.

At the time, EU Economic and Monetary Affairs Commissioner Olli Rehn said France was expected in return to reform its labour market, pension system, unemployment insurance and regulated professions.

Now, Hollande would seem to be demanding a further extension in exchange for easing the tax burden on business.

Arnaud Montebourg, a left-wing Socialist critic of globalisation who was industry minister in the outgoing cabinet and is likely to be promoted, launched a pre-emptive strike on any EU criticism of French budget plans.

"France has to find the ways and means to revive its economy within the European Union," Montebourg told France Inter radio on Tuesday. "This isn't France against Europe, because we are co-owners of Europe. The European Union is totally useless on the question of growth."

The response from euro zone finance ministers, meeting in Athens on Tuesday, was swift.

Both Rehn and Eurogroup chairman Jeroen Dijsselbloem said Paris had received more leeway and must meet its obligations. Failure to do so could lead to sanctions and eventually fines.

"France is aware of its commitments, they were already given more time and more work needs to be done," Dijsselbloem said.

Official figures released on Monday showed the French deficit strayed off target again last year, reaching 4.3 percent of GDP instead of the planned 4.1 percent, while government debt reached 93.5 percent of GDP and public spending accounted for an all-time record 57.3 percent of economic output.

Europe's northern sticklers for fiscal rectitude, Germany, the Netherlands and Finland, have criticised Rehn for being a soft touch by granting an extension without up-front actions and enforceable commitments on those reforms.

REALITY GAP

There is a reality gap between the government's conviction that has implemented far-reaching reforms in labour contracts and pensions by negotiation with employers and unions without traditional French street protests, and the European perception that it has taken only timid half-measures insufficient to balance public finances or unleash entrepreneurship and job creation.

European officials tend to roll their eyes when questioned about French reforms, or ask "What reforms?"

Rehn upset Paris last year by coining the term "reform a la francaise" to describe an incomplete pension overhaul that made most employees work longer for a full pension, but added to the burden of labour costs.

So far Hollande has mostly tried to narrow the fiscal gap by raising taxes rather than cutting spending. That will now change, he promised again on Monday. But while the president has "talked the talk", EU critics say he has yet to "walk the walk".

Beyond dismay over half-hearted reforms and budget efforts, as well as persistent French traits of protectionism and state interventionism in industry, many European officials complain privately of France's striking absence from European leadership.

"What we really need is for France to become France again," said a senior EU statesman, who spoke on condition of anonymity.

After his election in 2012, Hollande was initially more willing than Sarkozy had been to stand up to German Chancellor Angela Merkel, arguing for a policy mix with more "solidarity" and less austerity imposed on bailed out euro zone countries.

But France's own economic weakness compared to Germany, the absence of bold reforms and Hollande's reluctance to embrace any greater pooling of sovereignty over economic and fiscal policy in the single currency area have weakened Paris' voice.

"The strength of each country and the personality of its leader depend very much on how it is seen to have accomplished its own homework," the senior figure said. "If France were seen as more successful in that, it would be more forceful."

Officials who have attended meetings on European policy in Hollande's office say the president is wary of reviving splits in his Socialist party and the wider left over EU integration and national sovereignty.

"When the issue of possible treaty change and sharing more sovereignty comes up, the president says he doesn't have an electoral mandate for that, and he doesn't want to split the left over Europe again," one participant said. "He's determined to avoid another referendum."

The party was deeply divided by a 2005 plebiscite on a proposed European constitution. While Hollande was a leader of the "Yes" campaign, Valls, Montebourg and Foreign Minister Laurent Fabius were prominent in the "No" camp, which won.

The EU has gained more supervisory powers over national budgets since then due to the euro zone debt crisis.

With far right anti-European National Front leader Marine Le Pen gaining ground ahead of European Parliament elections next month, few mainstream politicians on either side of the spectrum are willing to argue for ceding more sovereignty to Brussels.

One EU official lamented that waiting for Paris to live up to its European responsibilities was a bit like Samuel Beckett's play Waiting for Godot. "Godot never comes."

(Additional reporting by Leigh Thomas; Writing by Paul Taylor; Editing by Giles Elgood)

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