Get Back To Work Mr. Hollande; French Jobseekers Surge To Record High

Despite all the 'promises' French joblessness has risen every month since April 2011... July's jump is the 2nd biggest sinmce April 2013 and at 3.424 million is a fresh record high. One can only hope (though good luck with that) that the new cabinet - same as the old cabinet - will turn things around. With 80% of French people believing that Hollande cannot fix the economy, we suspect things get worse before better...



French ministers are piling the pressure on Draghi to do something...


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The French reshuffle (via SocGen)

The cabinet reshuffle announced by French PM Valls was small and in line with our expectations. This is clearly a centerleft cabinet comprised of like-minded politicians, without the leftwing ‘rebels’. Memb rs of the new government should be more in sync with President Hollande’s economic choices this time around. This is embodied by the appointment of Mr Macron as Minister of Economy and Industry.

We continue to believe that the government will maintain a stable majority at the National Assembly despite the rebel politicians. The first test of this will come with the confidence vote, probably on Friday. In April, PM Valls gained an overhelming majority in his first confidence vote. But this time, the ruling majority may be weakened, although the Fifth Republic, founded in 1958, can still function. The odds of the government falling are very small. Indeed, such an event would trigger a general election, which would be political suicide for most Socialist lawmakers and their allies.

A center-left cabinet of like-minded politicians

The cabinet reshuffle was small, with most ministers keeping their jobs, notably Mr Sapin as Finance Minister, Mr Fabius as Foreign Minister and Mrs Royal as Minister of Energy and Ecology. The rebels, Mr Montebourg, Minister of Economy and Industry, Mr Hamon, Minister of Education and Mrs Filipetti, Minister of Culture, did not retain their positions, as expected.

The two main appointments concern Mrs Vallaud-Belkacem as Minister of Education and Mr Macron as Minister of Economy and Industry. Mrs Vallaud-Belkacem, 37, is a bright politician born in Morocco. This is the first time a woman has been appointed as the Minister of Education, an important post. Mr Macron, 36, was the Deputy General Secretary of the Elysée from 2012 to 2014 in charge of economic policy and is known to be very close to President Hollande. He was a former banker and embodies the center-left line, a supply-side driven economic policy. He is well versed in structural reform, having participated in the Attali Commission in 2008. Put simply, he represents the antithesis of Mr Montebourg, and there is no doubt that Mr Sapin and Mr Macron are on the same page.

Overall, we believe that the cabinet reshuffle will help reduce policy uncertainty at the domestic level. The message related to Mr Hollande’s economic programme was muddied by conflicting statements made by several of his government ministers in the past, by Mr Montebourg in particular. The hope is that the new and more compact government will help restore confidence among economic agents and investors.

A weakened majority, but the Fifth Republic is still functioning and remains stable

The question is whether the departure of leftwing rebels Mr Montebourg and Mr Hamon will cost the parliamentary majority. We think not. This should be confirmed fairly quickly with the confidence vote later this week (probably on Friday). The government needs a majority of 289 sea s (out of 577) at the National Assembly to run the country. In April’s confidence vote, PM Valls received 306 votes, although 11 Socialist members abstained. This suggests that the government has sufficient room to manoeuvre despite the potential for new defections. In particular, the Socialists and the Center-Left (Parti Radical de Gauche) represent 308 seats, while most Green MEPs (about 10 out of 17) could continue to vote in favour of the ruling coalition.

The Fifth Republic, established by General de Gaulle in 1958, has proven very stable indeed. No PM has ever been thrown out by Parliament. All cabinet reshuffles have been decided by the president. The main reason for this lies in France’s Dissolution Weapon: the President can dissolve the Assembly whenever he wants. Against the current backdrop, a genera election would doubtless lead to a crushing defeat of the Socialist party and would be political suicide for most Socialist politicians. This is why we believe a no confidence vote is very unlikely. Moreover, the ruling party has a very powerful weapon if it wants to pass bills that could be challenged by rebel politicians: Article 49.3, which the Hollande administration has yet to use. Article 49.3, known as "the responsibility commitment", allows the government to push through any bill without subjecting it to a vote. For the bill to be rejected, a no confidence vote would be required, but in that case, the government would fall, and this has not happened since the creation of the First Republic in 1958.