Merkozy Out, HoMer In

MacroAndCheese's picture

Breaking up is hard to do, and now Angela Merkel will have to toe with a new dance partner.  In Francois Hollande she will find a different kind of dancer, but not an unfamiliar one.  Francois Hollande trained under that other Francois, France's former socialist president Mitterrand.  To say that Hollande took a page from the playbook of his his mentor would be an understatement, in the classic French tradition.

By way of review, here is the campaign platform of France's newly elected Monsieur Hollande:

  • Hire 60,000 new teachers
  • Balance budget by 2017
  • Tax income above EUR 1 million at 75%
  • Reduce usage of nuclear power
  • Reduce consumer utility bills
  • Lower retirement to 60 for those who have worked 41 years
  • Reduce payroll tax
  • Renegotiate European treaty
  • Separate commercial and investment banking
  • Encourage ECB to lend money directly to governments

These are the main points of a 60-point program that Hollande referred to as "les 60 Engagements"--sixty promises.  In a similar vein, Mitterrand campaigned on the "110 Propositions for France" in the election against incumbent conservative Valerie Giscard d'Estaing, defeating the standing president with 51.7% of the vote, virtually identical to Hollande's 51.2%.  Mitterrand's program included measures familiar to yesterday's French voters, including an increase in the minimum wage, a reduction in the workweek to 39 hours, 5 weeks of vacation per year, a "solidarity tax" on wealth, and an increase in social benefits.

After less than two years in office, Mitterrand tacked sharply towards austerity to bring his ballooning budget in line.  This u-turn was known as the "tournant de la rigueur" (turn towards austerity).  Mitterrand was keen on increasing France's competitiveness with his European neighbors.  Here too, Hollande seems to be baking this fiscal responsibility into the cake in advance, since based on his own platform he intends to balance the budget within just 5 years.

It should come as no surprise that Hollande has learned from his socialist predecessor.  After all, he worked for him, from the very beginning.  As a student, Hollande volunteered in Mitterrand's unsuccessful 1974 campaign, and in 1981 became a "Special Advisor" to the newly elected president, and went on to become a staffer for the Mitterrand government's spokesman.  It seems very likely that Hollande followed Mitterrand's election recipe, to great effect.

How Hollande will fare is anyone's guess.  Mitterrand was helped in his quest for competitiveness by a weak French franc, which lost half its value against the dollar halfway through Mitterrand's first term in office.  Since France is tied to the euro, this beggar thy neighbor currency lever is no longer available, and Hollande may find a move toward austerity to be more painful this time around.  Hollande also has to share the dance floor with his German partner, a form of cohabitation that Mitterrand did not have to do.

This is not a pairing made in heaven.  In the months leading up to the election, Merkel very openly endorsed and supported outgoing president Sarkozy, seemingly linking the fate of a number of her initiatives to his ability to retain office.  As of last night the fiscal pact and general shift towards austerity of the entire Eurozone is in doubt, and the stewardship of the recovery will have to be a product of compromise.  However difficult Merkel found it to enact her reforms early on, it's going to be a lot tougher now.

Merkozy is out, HoMer is in.  As the Chinese say, may we live in interesting times.

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