France’s President Hollande Channels U.K.'s Blair

Hollande looks to New Labor for inspiration.


France’s new president, François Hollande, might be a Socialist, but he’s planning to implement economic reforms that will remake the nation into one more similar to the U.K. under Tony Blair. “Growth, justice and fiscal discipline are three components that need each other,” says Philippe Aghion, a Harvard University professor who’s among a handful of economists who have advised the new president. “Hollande is the French version of New Labor. That makes him an interesting figure. Before, it was all Keynesian economics, and he’s moving away from that,” Aghion tells Institutional Investor. But it’s not traditional supply-side economics, with low marginal tax rates, that Hollande is looking to achieve. The Socialist ran on a mishmash of a platform, vowing to bring the government’s budget into balance but also promising moves that would cost significant amounts of money — like undoing former president Nicolas Sarkozy’s minor victory of raising the retirement age to 62 from 60. Overall, though, he’s seen as a moderate. The Rouen-born career politician was quick to soothe worries about his policies by appointing Pierre Moscovici, a moderate and former European affairs minister, as Finance minister.

Hollande says he plans to revitalize France by focusing on youth and improving education, including adding 60,000 public education jobs. How the country will pay for it is another question. Aghion says that Hollande wants to not only increase income taxes on the middle and upper classes, with a whopping rate of 75 percent on incomes of €1 million ($1.25 million) or more, but also raise corporate taxes and close loopholes. Such moves are necessary to build support for later cost-cutting, the economist adds. “If you don’t show right away that you are more fair, you can’t get the consensus. That will allow him to cut spending,” he emphasizes.

France’s pension system faces a $130 billion deficit by 2050. If Hollande plans to implement pension cuts that Sarkozy couldn’t, as he says he will, he will face stiff challenges from quick-to-strike unions and an electorate already wary of globalization.

Critics maintain that Hollande, known as the “Living Marshmallow,” doesn’t have the wherewithal to execute tough measures. “There’s one positive element, nonetheless,” says André Sapir, a Brussels-based senior fellow at think tank Bruegel. “Changing society, especially in countries like France, is viewed as politically and socially difficult. For that you need to have an inclusive discourse. I think Sarkozy did not find that tone.”