(Swans - December 3, 2012) On November 6, a French journalist who was in Chicago covering the US presidential election asked a series of American colleagues whether they knew the name of the new French president. Some answered they had no idea. Others came up with Mitterrand or Sarkozy. Not one could come up with François Hollande -- a fact that should not displease the president since he has been doing his utmost to remain under the radar screen for the past six months. He is also a lucky fellow because the dark clouds that accumulate over France have been occluded for the past two weeks due to a raging fratricide war among the various movements or currents of the opposition, the "right." From far away one senses that the French ship of state is confusingly adrift. The ship navigates windward and leeward with no direction in sight. There is no programmatic difference between the two camps, but in style.
The nominally-socialist president gave his first long and studious press conference on November 13 in which he clearly showed that he was a Third-Way social democrat, ready and able to carry on policies that his predecessor, held in much contempt, had implemented or tried to put in place. The no longer "normal" president defined himself as a now "responsible" president and went on to explain the policies of his government -- policies that astounded his audience. He said that he wanted a politics of offer before one of demand (which is what Sarkozy wanted); that the priority ought to be the competitiveness of businesses and henceforth social costs should be transferred from businesses to the taxpayers (exactly what Sarkozy was advocating); that the reduction of public expenses should be done through the attrition of public servants -- that is, not replacing retirees (which is what Sarkozy was doing); that the European austerity plan had to be followed and had been voted by his majority (the exact treaty that Sarkozy had negotiated). But even more perplexing to the audience was the decision to increase the VAT (consumer taxes).
In January 2012, the Sarkozy administration decided that the main VAT rate would increase by 1.6% in October, in order to transfer social costs from business to the consumers and to also tax foreign imports, thus making these imports less competitive. François Hollande, the then candidate, proclaimed that this increase was "inopportune, unjust, unfounded and improvised." He added that after the legislative elections in June he would ask the parliament to revoke that decision -- which was dutifully done. In September, Prime Minister Jean-Marc Ayrault assured that there would be no increase in the VAT rates during the entire five-year administration. His minister of the economy, Pierre Moscovici, concurred. Suddenly, on November 6, Ayrault announced that the main VAT rate would go up from 19.6 to 20% and the intermediary rate from 7 to 10% in 2014. Imagine the eye-rubbings!
Add the taxation issue. The minister of the economy assured the populace that people were not leaving France because of the increases in personal taxation. Though there is no perfect way to know the reality -- the stats -- a latest report from an independent institute mentions the number of 400 people and families leaving the country every year with an accelerating trend. The famous French actor Gérard Depardieu has just bought a house in Belgium (in Néchin, three kilometers from the French border). It's like when it rains and the house has a leak. It drips, and drips, and drips. More importantly, as reported in an earlier column, is the risk of seeing corporations and entrepreneurs leave the country. Here again, the minister of the economy states that it's not happening. Then, why is his department working on a so-called "exit tax" for companies that would relocate elsewhere? Why create a punitive tax if, it is claimed, companies are not relocalizing? Will higher taxes on the front end and the back end work? One already knows the answer.
The economy is stalling, if not yet contracting. For the 18th consecutive month unemployment is rising -- 46,500 jobs lost in October (almost 230,000 since Hollande came to power). The French automobile industry (Peugeot-Citroën and Renault) is in disarray, running at less than 70% of capacity and therefore at increasing losses. Social plans, an expression meaning laying off people and closing plants, are rampant. Moody's downgraded its AAA notation of France's credit worthiness to AA1, all the while keeping a negative perspective on the French economy, which means that a further downgrade will happen in the near future. People are pessimistic, scared, and tired.
Still, as said at the beginning, the Hollande crew has been lucky in the past two weeks thanks to the implosion of the main opposition conservative party, the Union for a Popular Movement (in French, Union pour un mouvement populaire or UMP), which has been in the news day and night. The UMP was formed in 2002, assembling three traditional movements of the right to counter the rise of the National Front, a reactionary, xenophobic party led by Jean Marie Le Pen, who had unexpectedly qualified in the presidential election. Conservatives, moderates, and centrists came together in support of Jacques Chirac, who was eventually reelected to the presidency. (The history of the right in France from the early 19th century is quite complex and would deserve further explanation.) In 2004, Nicolas Sarkozy took over the UMP and was elected to the presidency of France in 2007, which he lost to François Hollande in May 2012. During that 10-year period the party remained unified under its two leaders. With Sarkozy having decided to retire from politics (at least officially), the party had to choose a new leader, or president. Internal elections by the adherents (over 300,000) were organized.
The conservatives are lead by Jean-François Copé, the general secretary of the party. He has advocated a political line that is quite close to that of the National Front, except that he is in favor of Europe and pro euro. In short, he has taken as hard an approach to politics as Sarkozy. The slightly more moderates who called themselves social Gaullists are represented by the former prime minister of Sarkozy, François Fillon, who was a favorite in the polls. However, Copé, being essentially in control of the internal voting apparatus, won the election by a handful of ballots. Accusations of fraud and manipulation were raised. A special commission reviewed the results and concluded that indeed Copé had won. More recriminations burst out as the two candidates kept butting heads like two bucks fighting for the prize of the coveted female. Sarkozy has tried to mediate in the background. They have been talking about having a referendum with the UMP militants to know whether they want a revote to take place. In other words, they want people to vote to revote. People have been laughing at the spectacle but are now tired of and disgusted by this egocentric circus. The centrists, meantime, have bailed out and formed their own group. The story is not over yet, though it is starting to fade away from the front pages and newscasts.
Mr. Hollande has had a respite for over two weeks, keeping quiet on the trials affecting his opponents, which allowed the ineptness of his government to stay unnoticed for the time being. The right is imploding, the National Front rejoicing, the economy tanking, the people struggling to make ends meet. This is not a pleasant sight.
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