What is the best argument that can be made in support of Hollande's new economic policy? I accept the point that removing the burden of cotisations familiales from firms may lead to some additional hiring. One might further argue that what Hollande has in mind is not a supply-side move but a stimulus-by-stealth, in which he cuts taxes on industry immediately but dithers on the promised spending cuts for a year or two, yielding a stimulus of a point and a half or so of GDP over 12 to 24 months. The budget deficit will also rise, but Brussels will have been appeased by the structural reform and will therefore let it pass. Let's say the maneuver cuts unemployment by 1 percent, so the president can claim that the inversion of the curve he has been promising for nearly two years is finally occurring. He may even squeeze out a half a point of growth before interest rates rise owing to the rising debt/GDP ratio. So there could be method to this madness.
On the other hand, what then? €30 billion is a big trou de sécu to make up. Arun (see comments on previous message) thinks that a little territorial reform and tinkering with allocations and proverbial fat-cutting will start the ball rolling. I think this is a pipe dream. For one thing, territorial reform never seems to happen. Sarkozy tried it and was shot down by his own party. Hollande won't even be given the courtesy of a face-saving compromise. The Socialists are powerful at the local and regional level, more powerful than Hollande at the moment. The local barons owe him nothing: he's hurt them more than he's helped. You could see the impatience in François Rebsamen's proposal today that France do away with the post of first lady--a warning shot across Hollande's bow. They will resist the dismantling of their fiefdoms, and Hollande will lose this battle.
Is Hollande serious about €50 billion in spending cuts? Frédéric thinks not. I tend to agree. If you were serious, you wouldn't make such an announcement out of the blue. You would have had extensive consultations beforehand and a list of proposed cuts to use as cudgels on the aggrieved parties. You have to make them fear worse in order to get them to accept the merely grievous. Today's opening gambit only encourages all the other players to call the president's bluff.
Finally, this strategy, if it is one, even on the best interpretation that can be given to it, fails to offer anything by way of compensation to le peuple de gauche. Nothing, that is, but a vague promise of jobs. L'emploi, the president said, is the only thing he cares about. But many who voted for Hollande did so because they don't trust firms to use their tax breaks to do new hires, even with the lamentably named observatoire des contreparties, which is supposed to ensure that only firms that toe the line get the breaks. But what is the line they are supposed to toe? Are there any criteria for an adequate number of new hires? No, the details are to be negotiated "branch by branch." But what branch of industry these days doesn't have a sob story to tell about how it must cut costs before it can hire, how it must restructure in order to grow, how it must await the revival of demand before it can invest? And I don't mean to say that these sob stories lack truth. They're all too accurate. Hollande's social liberalism with contreparties is neither fish nor fowl: it aims to micromanage what firms do without means to assess conditions in the industries it purports to direct. Meanwhile, the promised reductions in state spending imply a retreat from earlier promises to foster long-term growth by funding new research and development, investing in education, etc.
I see this new policy as yet another exercise in temporizing, hoping that something will turn up while trying this and that without much analysis of how the parts are supposed to fit together.