The French election season is far from over, as the parliamentary elections will be held early next month, and their results will be decisive for the composition of France’s future government. However, as socialist Francois Hollande was elected president and polls indicate a probable victory for the Socialist Party in the parliamentary elections, a socialist government will dominate French politics for the foreseeable future.
Throughout his presidential campaign, Hollande repeatedly criticized the emphasis on financial discipline of the rescue packages decided upon by the 27 leaders of the EU in December last year. He also condemned the policy of the European Central Bank (ECB) to make price stability its primary objective.
His proposed solutions for the French economy are filled with socialist ideas, according to which the government should actively intervene in the market to create or encourage enterprises to create nearly half a million jobs, to maintain state enterprises intact, to increase taxation of the rich and to allow people to retire at sixty under certain conditions.
All of his actions and discourse have brought the world to suppose that, once he takes office, Hollande will refuse to implement the consensual financial measures decided unanimously by the EU leaders. Hollande also seemingly puts into doubt the ongoing austerity drive in the EU, which is a condition to comprehensively solving the eurozone crisis.
However, it is doubtful whether Hollande is really willing and able to find any alternative to this solution.
First, the average debt-to-GDP ratio in the EU is 80 percent, and more than 85 percent in the eurozone. Greek debt will reach nearly 350 billion euros (US$453 billion), or 160 percent of its GDP, before the end of this year, while French public debt is over 90 percent of GDP. Any country that abandons austerity policies and refuses to reduce its debt ratio will be immediately punished by ratings agencies and the international market, which in turn will shake its stock market and finance and disturb its economic order.
Conscious of this danger, Hollande avoided directly attacking austerity as a policy and instead said that the policy selected by French President Nicolas Sarkozy totally neglected the need for growth and job creation. He therefore promised to continue the reduction of the public debt at an average rate of 3 percent per year with the aim of balancing the national budget by 2017.
Second, Franco-German leaders have historically always been able to work closely to lead European integration and solve European crises in spite of differing political ideologies. There is no reason to suppose that Hollande cannot work closely with German Chancellor Angela Merkel to solve the eurozone crisis.
Lastly, the real difficulty in finding a definitive solution to the eurozone crisis concerns the search for economic engines that can stimulate growth and create jobs in the EU.
Leaders of the EU and its member states now have only two options. They can decide to expand the role and mandate of their central bank to the extent that the bank will share responsibility for economic expansion. The ECB would then be equivalent to a “European Federal Reserve” and adopt policies similar to quantitative easing to stimulate economic growth in the EU even at the price of inflation and devaluation of the euro.