The promise and challenge of Francois Hollande

The financial transactions tax is a non-starter because the EU would never adopt it without British support, and David Cameron has been unyielding on this point. Reforming the allocation of EU structural funds including making them more accessible to small and medium-sized enterprises could help promote job creation, but given the small size of this budget (less than 0.3% of EU GDP), the macroeconomic effects are unlikely to be huge. Expanding the lending capacity of the EIB (currently about 1% of EU GDP) would also be beneficial, but given the bank’s project cycle, the macroeconomic effects are likely to be spread over time.

Potentially the most important of the measures in Hollande’s plan is his endorsement of project bonds to stimulate private sector funding of energy, transport and telecommunications projects across Europe. (These should not be confused with ‘Eurobonds’ often proposed to mutualise sovereign debt, which Germany has steadfastly rejected.) Project bonds have been in the EU’s policy pipeline since 2010 and with strong support from France, they may achieve final approval in time to launch pilot projects later this year. But while Hollande’s four-point plan is pointing in the right direction, it’s unlikely to bring about significant improvement in growth and job creation in the short-medium term – the time period that matters for angry voters and impatient financial markets.

For Hollande’s growth agenda to make a real difference, he will have to pair his proposals with complementary growth-oriented proposals coming from across the political spectrum. Such proposals include opening more professions and sectors to competition and facilitating greater labour mobility across the EU, liberalising labour markets in Eurozone states (especially in the South) that make it exceedingly costly to hire and fire workers, expanding EU and national supports for research and development including the new Horizon 2020 proposal, and reducing legal and bureaucratic obstacles to innovation and entrepreneurship. Although some of these measures were included in the EU’s pre-crisis Lisbon Strategy, which few member states pursued with much vigour, their importance has not diminished.

If Hollande were to broaden his pro-growth agenda in this manner, he would have no difficulty attracting other European governments to his side. With France in the lead of such a broad coalition, Germany would have no choice but to support the adoption of a ‘growth compact’ to balance the fiscal compact and to be more flexible on how quickly member states must cut spending to reach their fiscal targets. This could finally set Europe on the road to recovery.

However, Hollande’s credibility as Europe’s champion of growth and job creation will depend as much on what he does at home as on what he proposes for the EU. As he takes office, France’s debt, unemployment and competitiveness leave it balanced delicately between the Eurozone’s success stories and its basket cases.

If Hollande does not soon demonstrate a serious commitment to sustainable national budgets, there is a serious risk that financial markets will relegate France to the second category, causing a further spike in the country’s debt-financing burden, drawing funds away the social programmes that his supporters cherish and perhaps even dealing a death blow to the Euro.

Hollande’s commitment to prioritise France’s small and medium-size enterprises is encouraging but his promise to hire more teachers and lower the retirement age has not prepared the French for the difficult choices that sustainable finances require. Moving in that direction is thus likely to provoke the sort of strike actions that Socialist politicians find difficult to ignore.

Ultimately, the success or failure of the Hollande presidency will depend upon his willingness to rise above the preferences of his political base in favour of a comprehensive strategy for growth, job-creation and fiscal sustainability that restores the economic vitality of France while helping to pull Europe back from the brink.

The writer is associate professor of European governance at University College Dublin, director of the UCD Dublin European Institute and editor of www.europedebate.ie