France's Hollande could be secret reformer

Reuters News
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Posted: Mar 15, 2012 6:54 AM
France's Hollande could be secret reformer

By Catherine Bremer

PARIS (Reuters) - Despite his criticism of bankers and plan for a millionaires' tax, French Socialist Francois Hollande could turn out to be a reforming president, his aides are keen to suggest.

On the campaign trail, Hollande espouses a traditional tax-and-spend platform to rally left-wing supporters and preserve his lead in most opinion polls ahead of an April-May presidential election.

But even as he dismays the business sector with planned tax rises and a broadside against the world of finance, Hollande has described himself as "pink", not "red", and aides say he would tread a pragmatic, centrist path in office.

Hollande would not be as bold as Social Democrat Gerhard Schroeder, whose 2003-05 labor reforms helped Germany prosper through Europe's debt crisis, nor embrace the "Third Way" pro-market ideology of Britain's Tony Blair.

Yet several aides who spoke to Reuters, most on condition of anonymity, said he is keen to nudge the Socialists out of an ideological rut that has distanced them from centre-left parties elsewhere in Europe, and to coax them into the 21st century.

"Hollande is a modern left-winger, but at the same time he's in touch with France," said Jean-Marc Ayrault, Socialist floor leader in the lower house of parliament, tipped for a government post if the party wins.

"He is pragmatic. He's flexible and he looks for compromise. He's not stuck in nostalgia for the 20th century, or the 19th century for that matter."

For example, Hollande aims to reform France's rigid labor market gradually through negotiation with trade unions.

But he needs to move cautiously, aware that the left last held the presidency 17 years ago under Francois Mitterrand, the sole president in the Socialist Party's 43-year history.

Mitterrand swept to power in 1981 on a Marxist-influenced platform of nationalizations and a generous welfare state but had to change course after two years when his policies sparked a run on the French franc.

Partly due to that history, Hollande is keen to stress his fiscal prudence. His manifesto calls for higher taxes on banks, big firms and the rich to help cut the public deficit while pumping more funds into education and job creation.

He also wants to cap executive pay, create a financial transaction tax and separate banks' retail and investment arms.

He launched his campaign by declaring that Big Finance was his real adversary and should pay for the global financial crisis, and he has called for a 75 percent top tax rate on income above 1 million euros a year.

Opinion polls show such rhetoric strikes a chord with left-leaning voters, including supporters of hard leftist Jean-Luc Melenchon, credited with 10 percent in the polls. It also appeals to centrists fed up with economic gloom, high unemployment and a feeling that conservative President Nicolas Sarkozy has shielded the rich with tax breaks.

Hollande has promised a broad fiscal overhaul to tax investment income as heavily as wages. Aides say he will delay spending programs if necessary to control public finances.

"Hollande understands these issues very well and could be the person who can translate social democracy, or the shift towards it, into French. That's really his ambition," said a private sector adviser to the candidate.

"He may be the only person today who could succeed in making this transition for France, under heavy external constraints, without creating a feeling of battering the country."

PIVOTAL

Sandwiched between northern countries that have undertaken painful reforms and southern states mired in crisis, France is a pivotal country for Europe's economic fortunes.

It has preserved a centuries-old statist tradition shared by Gaullist leaders and a Communist-influenced left, while most neighbors have given more play to market forces.

Past conservative governments often buckled to the unions when attempting reforms, but Sarkozy pushed through a 2010 increase in the retirement age despite weeks of strikes.

The Socialists are still imbued with a vestige of the rebellious spirit of the 1789 French Revolution. When last in government a decade ago, they introduced a blanket 35-hour work week that many economists say damaged economic competitiveness.

Critics accuse Hollande, who lacks international or ministerial experience, of having the same left-wing ideas as when he joined the party three decades ago, but people who know him say he is well aware of the need for change.

Many in the educated urban class saw former International Monetary Fund chief Dominique Strauss-Kahn as having the ideal profile for a modernizing Socialist president until his downfall last May.

"Hollande is more in touch with France than Strauss-Kahn. But I don't think their ideas on economic policy are very different," said a senior Socialist lawmaker, who said it was obvious Hollande would modernize once in office.

"He can't go too far, but it has to be done and with no looking back."

Former Socialist Prime Minister Lionel Jospin, who shared power with conservative President Jacques Chirac in 1997-2002, oversaw partial privatizations euphemistically dubbed "capital openings".

Hollande has similar market-friendly ideas but is careful not to alarm his left-wing support base while out on campaign.

"Structural reforms are not in his program for electoral reasons but under the pressure of events a Socialist government would still have to deliver something," said Deutsche Bank senior European economist Gilles Moec.

"This ‘read-between-the-lines' tactic is understandable in an electoral context but creates doubt as to what the policy will be in the end," he said. "To get unions on board will take time. The social democratic model is not in France's DNA."

MUSEUM CURATOR?

Hollande's tactic of keeping his reformist colors hidden makes him an easy target for opponents. Guillaume Peltier, one of Sarkozy's campaign aides, has dubbed him "the curator of Europe's Socialist museum".

"European Socialists have understood that the world has changed. Only the French Socialists have not changed," Peltier said, criticizing Hollande's plan to hire 60,000 extra educators.

In terms of rolling back Sarkozy's reforms, Hollande says he will restore retirement at 60 instead of 62 but only for workers who began work at 18 or younger and have 41.5 years' pension contributions. He also plans to scrap an exemption on payroll taxes on overtime worked above the statutory 35-hour week.

"Hollande has a much longer road to travel than Blair did in terms of bringing his party in line with contemporary concerns," said Nicolas Dungan, a senior fellow at the Atlantic Council think-tank in Washington.

"He cares more about voters right now than markets and he has to walk on eggshells," Dungan said, noting Hollande needs to win not just the presidency but a June parliamentary election.

Hollande's advisers say any reforms will be gradual.

"We are in France, not in Britain or the Netherlands. Any evolution has to be gradual. You can't separate policy from the way the system works," said one of his policy aides.

(Reporting By Catherine Bremer; Editing by Paul Taylor and Janet McBride)