“I was elected with the help of the Left and a I remain a Socialist,” he said, adding that it was possible to preserve the French welfare model by learning from the Nordic states. In reality the Scandinavians have been chipping away at benefits.
Mr Hollande’s plan is based on a “responsibility pact” with the employers federation Medef. The group’s chief, Pierre Gattaz, said he is willing to “play ball”, praising Mr Hollande for a genuine shift in strategy after 18 months of half-measures, false-starts and back-sliding. Medef has pledged 1m jobs by 2020 in exchange for a shake-up of labour laws and a €100bn cut in labour costs over five years, split between tax cuts and lower social security contributions.
Yet he is sticking to demands from Berlin and Brussels for further austerity to meet EU deficit targets, despite the risk of a triple-dip recession. Spending cuts will come first, followed by tax cuts later. The policy is not neutral.
…Since supply-side reforms tend to hurt growth at first, the strategy risks pushing France closer towards a deflation trap. Unlike Britain and the US, France is having to endure austerity without aggressive monetary stimulus to cushion the blow.
French economists are deeply split over the reforms. Marc Touati, from the economic consultants ACDEFI in Paris, said the measures are too vague to pull the country out of its downward slide. “It’s a bluff intended to buy time and soften up the rating agencies. It won’t be followed by concrete action,” he said.
Alain Bokobza, from Société Générale, said the reforms amount to a “radical policy shift” comparable with the ideological U-turn in 1983 by President François Mitterrand, when he made his peace with French employers and ditched his hard-Left policy of “socialism in one country”.
Mr Hollande was intimately involved in the episode as a member of President Mitterrand’s political staff, and watched his mentor come back from near political death with a Rightward shift.
Société Générale said French equities outperformed German equities by 100pc over four years from 1983 to 1987. There could be another catch-up rally this time as Germany goes in the opposite direction, with a new minimum wage and an erosion of its reforms. “Buy the CAC 40,” said Mr Bokobza, predicting a 60pc jump in the French index to 7,000 by the end of 2016.
He said France will enjoy a growing advantage over Germany in power costs for industry. France pays less than €0.10 per kilowatt hour due to relatively cheap nuclear power: Germany pays nearer €0.15, expected to rise as its nuclear reactors are phased out by 2022.
It is a highly optimistic view. Huw Pill, from Goldman Sachs, said the French people must brace for a 40pc cut in relative living standards compared with Germany over coming years to bring the eurozone’s two biggest economies back into alignment - a daunting prospect.
Mr Hollande’s broad-brush promises leave it unclear how far he is willing to go, although the collapse in his poll ratings to near 20pc appears to have shaken him out of complacency. The French political establishment is deeply alarmed by a shift in car and truck production from French plants to sites in Spain, now deemed more competititive after wage cuts.
Mr Hollande has clearly abandoned any idea of a Latin bloc of EMU states to push for growth, a stratagy that he tried tentatively at the start of his term.
In a bid to rebuild tattered relations with Germany he said that all major projects in the eurozone should now be co-ordinated by Paris and Berlin through “economic convergence”.
In a crucial move, he revived the dying Franco-German military brigade and promised fresh life for Franco-German defence. Mr Hollande has thrown in his lot with Berlin irreversibly. — (Ambrose Evans-Pritchard @ The Telegraph)