First the cover of the Economist, with France becoming a "time bomb in the heart of Europe". Then the Moody's rejection: Paris has lost its triple A rating on public debt. This week had started like this, moreover with François Hollande down in the polls (he no longer has the majority of the French on his side). The week, however, is ending in this way: with Oats, French government bonds, over ten years, which have a yield of around 2,18%, practically at historic lows. And certainly much lower than the 3,5% exceeded several times in the difficult autumn of 2011 (even this level from an Italian or Spanish point of view would remain enviable…).
In short, the markets, at least for the moment, do not seem to share the fears expressed every other day by the Anglo-Saxon media and (even worse) by the rating agencies and investment bank analysts. Among them, one of the classic arguments is to compare the journey of Hollande, in power since last May, to that of François Mitterrand, who became President in May 1981. And that, with the communist allies in the Government (this is not the case with Hollande ), he embarked on a 360-degree left-wing policy, with repeated nationalizations and public spending galore to give new impetus to the national economy.
Only a year later, he made a decisive change (it was said that he understood his mistakes), thanks above all to the Minister of Finance, a certain Jacques Delors: he launched the country (which found no buyers at bond auctions, exactly the opposite of what happens now) towards a policy of rigor, including the cancellation of the escalator. There was also a very young Hollande at the Elysée, then in the service of Jacques Attali, Mitterrand's "special adviser".
Well, let's get it straight: Hollande of 2012 is not the Mitterrand of 1981. Yes, after the election he had to give some sop to the people of the left, including the extreme one, who elected him. For example, the decision to hire 60 thousand professors and teachers in five years. Other concessions are perhaps more questionable, such as the return of the retirement age to 60 for part of the population. But after that initial flare-up, Hollande, unlike his putative political father in 1981, quickly returned to the ranks.
He has returned to what he is: "a lucid socialist-liberal and reconciled with himself", as the weekly Le Nouvel Observateur wrote in an editorial a few days ago. A social democrat, who made use of the extreme left, including the communists, for the election to the presidential elections, in order to then kill them immediately afterwards among his allies (he doesn't need to, the socialists alone obtained the majority in the Assembly national).
Just look at the draft budget for 2013, now under discussion in Parliament (and which will almost certainly receive the green light as it is), which already provides for the reduction of the public deficit to 3% of gross domestic product next year. Public spending cuts of 60 billion are being planned (practically only the school is saved). Not only that: since Hollande knows very well (like the great experts interviewed by the Economist or Moody's analysts) that one of the main problems of the French economy is the excessively high cost of labour, he has launched relief for 20 billion a year in favor of businesses.
These were the recommendations that came from a report on competitiveness, drawn up by a team of experts, led by Louis Gallois, a former public manager. As soon as the study came out, everyone said that Hollande-Mitterrand would never welcome them, they were on the right… But on the same evening, less than three weeks ago, Hollande announced the 20 billion euro cut in social security contributions payable by companies: equal equal to what was foreseen by Gallois and company. It seems that that decision came too late to be considered in the Economist's dossier dedicated to France (largely previously closed in the printing house) or by Moody's, which operates on very long terms in its decisions. And that for some time now he had foreseen the downgrading of Paris.
Among other things, it must be said that a good part of those 20 billion will come from an increase in VAT. Candidate Hollande had promised not to raise the tax. And the newly elected Hollande had returned to one of the latest measures taken by Nicolas Sarkozy, the social VAT, precisely the financing of a part of the social contributions with a VAT increase. Which is essentially what he did a few months after his election (albeit by lowering the reduced rate for basic necessities, unlike his predecessor). Because, we repeat, Hollande is not the Mitterrand of 1981. His next test bench is the reform of the labor market, already the subject of a negotiation between the social partners.
They will have to provide the government of the socialist Jean-Marc Ayrault with the elements to move towards greater flexibility. Hollande knows very well that it is there that action must be taken. The contribution of industry to the GDP dropped from 18% in 2000 to 12,5% last year, when the average hourly labor cost became higher than the German one (34,17 euros against 33,1, while the 'Italy is at 25,2 and Spain at 21,7). The other challenge, faced with the cuts now on the way, is public spending at the highest level in Europe. And that with Sarkozy's five-year period it has grown (from 52 to 57% of last year's GDP). Meanwhile, however, investors continue to buy French bonds. And the spread with the Bund fluctuates around 70 basis points, even down in recent weeks. So much for the Economist and Moody's.
