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Mitterrand's shadow looms as Hollande seeks to revive France

04 January 2014 01:03 (UTC +04:00)

Baku-APA. France's deeply unpopular President Francois Hollande appears to have found inspiration from his hero Francois Mitterrand, announcing an abrupt pro-business lurch in tax policy that echoes moves by his Socialist predecessor 30 years ago, APA reports quoting Reuters.

Desperate to revive the euro zone's second-biggest economy in the face of near record unemployment, Hollande said in his new year's address he would cut companies' labor cost in exchange for firms hiring more workers.

Hollande, who polls show has become the least popular French president in modern history, called the measures a "responsibility pact".

Business leaders have cautiously welcomed the prospect of cuts to labor cost that they say make it harder to add jobs in France than elsewhere in Europe. Unions and Hollande's leftwing allies in parliament have expressed reservations.

Hollande's move is a nod to Mitterrand, who two years into his own presidency, with the French economy and his personal popularity cratering, announced a turn towards pro-business policies more commonly associated with the right than the left.

Hollande's admiration for Mitterrand runs deep: he has been known to take inspiration not only from his Mitterrand's policies, but even his turns of phrase.

The detail of his new proposal has yet to be announced, and the political consequences sound severe. Giving a tax cut to companies means either raising taxes on individuals, cutting back state spending on benefits, or both - all likely to be unpopular with voters who elected him in May 2012.

But with his approval ratings having fallen so far already, Hollande may have little left to lose. Municipal elections loom in March with the Socialists expected to take big losses.

"The political cost has already been paid. It's a matter of emergency now," said Deutsche Bank economist Gilles Moec.

Shifting more of the burden of financing welfare to households would weigh on consumer demand, the traditional motor of French growth, but that would be a necessary price to pay to rebuild French firms' competitiveness, he added.

DEJA VU

The proposals are deja vu for veterans of Mitterrand's 14 years in power. As the first Socialist leader of France's post-1958 Fifth Republic, Mitterrand spent his first two years in office nationalizing industries and expanding worker benefits, only to abruptly switch course in 1983 as public finances and his own popularity crumbled.

Mitterrand's government, which included then budget minister Laurent Fabius - now Hollande's foreign minister, launched an austerity drive and sought to restore corporate competitiveness by breaking the indexation of wages to soaring inflation.

The move came to be known in France as the "tournant", or turning point, guided by economy minister Jacques Delors, who went on to become president of the European Commission.

Mitterrand's Socialists would go on to lose parliamentary elections, forcing him to serve under "cohabitation" with a right-wing prime minister. But France's economy and Mitterrand's personal popularity both eventually recovered, and Mitterrand was reelected to a then-unprecedented second term in 1988.

Critics and supporters alike referred to Mitterrand's volte face as "supply-side Socialism" - a leader of the left adopting the pro-business policies to spur economic growth associated at the time with conservative U.S. President Ronald Reagan.