France

Politics:

• Analysis

  France politics: Manuel Valls, a Socialist Sarkozy

  French politics: Manuel Valls, a Socialist Sarkozy

  A tough yet popular interior minister who may have bigger ambitions

  IT HAS been a bruising year for France's Socialists. The economy is at a standstill; joblessness is rising. In December President François Hollande's popularity rating dropped to a new low of 35%. That of his prime minister, Jean-Marc Ayrault, fell further still. The new team is far below the ratings of the last left-wing government, under Lionel Jospin a decade ago. Yet amid the disillusion, one Socialist defies the trend: Manuel Valls, the interior minister.

  In less than a year the 50-year-old Mr Valls has been transformed from a pesky, upstart outsider into France's most popular politician. The son of a Catalan artist who obtained French nationality as a 20-year-old, Mr Valls was snubbed at the Socialists' 2011 presidential primary. His outspoken views, echoing Tony Blair, who modernised Britain's left, were deemed risqué. Instead of peddling false dreams, he argued that politicians should tell the truth: thanks to its huge public debt, France faced an "effort equivalent to that after the second world war", and not all problems could be resolved by spending more. For his pains, he got less than 6% of the vote. Yet today Mr Valls tops the polls with a handsome 61% rating, seven points up on a month ago. He is increasingly talked of as a possible prime minister. To the irritation of some colleagues, the Nouvel Observateur, a left-leaning magazine, put him on its cover under the title "The vice-president".

  Mr Valls's ascent is partly thanks to a keen eye for what looks good in the media, and a matching energy to supply it. A former mayor of Evry, a multicultural suburb of Paris which has seen its share of riots and gang warfare, he prepared for the job for years. Having run Mr Hollande's campaign communications, Mr Valls knows the political value of standing shoulder-to-shoulder with policemen, firemen and ordinary folk. After gangland murders in Marseille, and to much local astonishment, he visited the city's high-crime northern districts by metro.

  Yet his rise also reflects a big shift on the left. In many areas Mr Valls has been as tough as his right-wing predecessors. He has not hesitated to dismantle illegal Roma camps, expel an imam for preaching anti-Semitism, tighten counter-terrorism laws to clamp down on jihadis or put more police on the streets. When Nicolas Sarkozy did these things, the Socialists cried foul. Now in power, they seem quite happy with their tough-cop minister.

  Mr Valls argues that this is because, unlike Mr Sarkozy, he is not seeking to be divisive, as he is not chasing far-right National Front voters. Over the years, he says, the left has come to accept a harder line on security policy. It was Ségolène Royal, the party's defeated 2007 presidential candidate, who pinched Mr Blair's slogan, "Tough on crime, tough on the causes of crime". Mr Valls even wrote a book arguing that, far from being illiberal, a hard stance on order and authority is the best guarantor of individual freedom.

  Mr Valls has made his name with unorthodox thinking that annoys party grandees. He once got into trouble for suggesting that the word "Socialist" should be dropped from the party's name. He has criticised the 35-hour week. He talks of "apartheid" in France, referring to ethnic ghettos in the banlieues, saying it shows the failings of the integrationist model. On security, he still clashes with others in government, notably the justice minister, Christiane Taubira, who wants more non-custodial sentences. But overall the left seems to have shifted to the right.

  The same cannot be said of economic policy. Mr Hollande campaigned on a promise to tax the rich at 75%, stop industrial closures and face down the "world of finance". Today, the government seems unable to decide whether it is keeping to that line or has woken up to reality. With one hand, it lowers business payroll taxes to boost competitiveness. With the other, it threatens (before backing down) to nationalise part of a steelworks, and has stuck to higher taxes (see box on next page). All this looks decidedly confused.

  "This process of metamorphosis should have been done during the ten years in opposition," argues Mr Valls. "The challenge is that we are now adapting our software in office." He is too loyal to criticise the government's blundering over the steelworks, but hints at his disapproval by saying, "We should create hope, but not false hopes." Having failed to settle their economic differences before the election, the Socialists are confronting difficult choices in hard times, with neither an electoral mandate nor a party consensus for a more business-friendly approach.

  Mr Valls's star power has not won him only friends. His base within the party is slight, and some resent the way in which he has orchestrated a closeness to Mr Hollande. One critic says he is "not a team player". Others note that he is not always as tough as he makes out: he is easing criteria for regularising illegal immigrants. His single-minded ambition, his outsider background--with a foreign-born father who did not attend France's elite schools--and an energetic readiness to take on received wisdom: there are echoes here of a younger Mr Sarkozy, who also made his name as an action-man interior minister. Mr Valls bristles at the comparison, but then concedes that "If you mean that he was energetic, and shook up old habits, and grabbed hold of security dossiers, then I'm not bothered."

  December 22, 2012

• Background

  France: Political forces at a glance

  Political outlook: Political forces at a glance

  Present government: France is a democratic republic with an unusual, hybrid system of government. The president, who is directly elected, wields huge power when, as is currently the case, parties loyal to him command a majority in the National Assembly (the lower house and the more important of the two parliamentary chambers). When the presidential and parliamentary majorities conflict, the president is forced into "cohabitation" with a government not of his choosing, boosting the influence of the prime minister in domestic affairs. In 2002 the presidential and parliamentary terms were aligned to reduce this likelihood and the 2012 elections confirmed this "coat-tails effect". Thus, the new president, François Hollande, who was inaugurated on May 15th, was rewarded with a parliamentary majority at the general election in June. The centre-left government is led by the prime minister, Jean-Marc Ayrault, a long-standing ally of Mr Hollande, and is drawn mostly from Parti socialiste (PS).

  General election, June 2012
  Party	% of votea	National Assembly seats
  Parti socialiste (PS)	29.4	280
  Miscellaneous left-wing	3.4	22
  Europe écologie les verts (EELV)	5.5	17
  Parti radical de gauche (PRG)	1.7	12
  Presidential majority (left)	39.9	331
  Union pour un mouvement populaire (UMP)	27.1	194
  Miscellaneous right	3.5	15
  Nouveau centre	2.2	12
  Parti radical	1.2	6
  Alliance centriste	0.6	2
  Total parliamentary right	34.7	229
  Front de gauche (FG)	6.9	10
  Front national (FN)	13.6	2
  Regionalists and separatists	0.6	2
  Le centre pour la France	1.8	2
  Other far-right	0.2	1
  Other far-left	1.0	0
  Other ecologists	1.0	0
  Others	0.5	0
  Total	100.0	577
  a Share of votes cast in the first round on June 10th. The second round was on June 17th.
  Sources: Ministry of the Interior; Le Monde.

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  Next elections: The next presidential election will be held in April-May 2017, followed by a general election in June 2017.

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  August 23, 2012

• Structure

  France: Political structure

  Official name

  French Republic

  Legal system

  Codified Roman law system; constitution of 1958

  National legislature

  Bicameral: Senate of 348 members indirectly elected by local councils for a period of six years, with one-half retiring every three years; National Assembly of 577 members directly elected from individual constituencies by a two-ballot system for a period of five years; may be dissolved by the president

  Electoral system

  Universal suffrage; two-round voting system for the National Assembly

  National elections

  Last presidential election in April-May 2012; next presidential election due in 2017. Last legislative election June 2012; next legislative elections due in June 2017

  Head of state

  President, directly elected for a five-year term, currently François Hollande (PS), elected in May 2012

  National government

  There is a clear separation of executive and legislative power; constitutionally, the locus of executive power is the Council of Ministers, which is chaired by the president. The prime minister is appointed by the president, who must consider whether the government can obtain the necessary majority in parliament; according to the constitution, the prime minister hands his resignation to the president, but in practice, prime ministers have been dismissed by the president. Ministers are similarly appointed and dismissed, but on the prime minister's suggestion; they do not have to be members of parliament; an interim centre-left government was appointed in May 2012 and is likely to be confirmed in office following the legislative election in June 2012, though not without changes.

  Main political parties

  Parti socialiste (PS); Europe écologie les verts (EELV); Parti radical de gauche (PRG); Parti communiste français (PCF); Union pour un mouvement populaire (UMP); Nouveau centre (NC); Mouvement démocrate (MoDem); Front national (FN)

  Prime minister: Jean-Marc Ayrault (PS)

  Senior ministers

  Administrative reform, decentralisation & civil service: Marylise Lebranchu (PS)

  Agriculture & food processing: Stéphane Le Foll (PS)

  Culture & communications: Aurélie Filippetti (PS)

  Defence: Jean-Yves Le Drian (PS)

  Ecology, sustainable development, & energy: Delphine Batho (PS)

  Economy, finance & trade: Pierre Moscovici (PS)

  Foreign affairs: Laurent Fabius (PS)

  Higher education & research: Geneviève Fioraso (PS)

  Interior: Manuel Valls (PS)

  Justice: Christiane Taubira (PRG)

  Labour, employment, vocational training & industrial relations: Michel Sapin (PS)

  National education: Vincent Peillon (PS)

  Production recovery: Arnaud Montebourg (PS)

  Regional equality & housing: Cécile Duflot (EELV)

  Social affairs & health: Marisol Touraine (PS)

  Central bank governor

  Christian Noyer

  December 01, 2012

• Outlook

  France: Key developments

  Outlook for 2013-17

  • France's president, François Hollande, has seen a rapid loss of public support since taking office in May 2012. Regaining the initiative will be difficult amid a stagnant economy, rising unemployment and ongoing austerity.
  • The Parti socialiste (PS) has a comfortable parliamentary majority and deputies are likely to remain largely compliant in the near term, allowing the government to implement a sharp fiscal tightening in its 2013 budget.
  • The political climate is likely to deteriorate from 2013 as the impact of austerity measures is felt. Relations with public-sector trade unions will come under particular strain over job cuts in parts of the public sector.
  • Mr Hollande will seek to balance domestic austerity with calls for more growth-focused policies at the European level, but his ability to challenge Germany's hegemony is limited.
  • The government will largely rely on tax increases to meet its 2013 deficit targets, notably targeting more wealthy households and large businesses.
  • The government is unlikely to be able to avoid deeper spending cuts from 2014 in order to retain the confidence of financial markets that it is pursuing a credible strategy to put the debt/GDP ratio on a downward path.
  • Weak growth could force delays to plans to relieve the tax burden for businesses from 2014, intended to help to improve competitiveness.
  • Real GDP is forecast to stagnate for a second successive year in 2013, reflecting the impact of fiscal tightening in France and across Europe. Assuming some progress in stabilising the euro zone, a mild recovery is forecast from 2014.

  Review

  • According to the November TNS/Sofres opinion for Le Figaro, Mr Hollande's approval ratings fell by 5 percentage points over the previous month, to 36%.
  • With support for the prime minister, Jean-Marc Ayrault, falling even more rapidly, the president is under pressure to take a more active role.
  • Following a long-awaited report on competitiveness, the government has promised to phase in EUR20bn in tax relief for companies from 2014.
  • The measures will be financed by an increase in value-added tax (VAT) and spending cuts, although these have yet to be spelt out.
  • Non-farm private-sector employment fell by more than 50,000 in the third quarter, as the pace of job destruction more than doubled.
  • After a short-lived improvement in August, industrial production contracted sharply in September, falling by 2.7% month on month.

  December 01, 2012

Economy:

• Background

  France: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	63.3	Population growth	0.5
  GDP (US$ bn; market exchange rate)	2,777b	Real GDP growth	0.4
  GDP (US$ bn; purchasing power parity)	2,288b	Real domestic demand growth	0.7
  GDP per head (US$; market exchange rate)	43,887	Inflation	1.8
  GDP per head (US$; purchasing power parity)	36,164	Current-account balance (% of GDP)	-1.5
  Exchange rate (av) €:US$	0.72b	FDI inflows (% of GDP)	1.9
  a Economist Intelligence Unit estimates. b Actual.

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  Background: The political foundations of contemporary France go back to the 1789 revolution. France was a founder member of the EU and has been in the vanguard of European integration. However, French voters have become more sceptical towards the EU over the past decade or so. The French economy is in competition with that of the UK to be the second largest in western Europe and is around three-quarters the size of the German economy.

  Political structure: The constitution of the Fifth Republic came into force in early 1959. The president is elected by universal suffrage for a five-year term. Parliament comprises two chambers: the Senate (the upper house), members of which are elected by an electoral college and serve for six years (with one-half retiring every three years); and the more important National Assembly (the lower house), to which deputies are elected by universal suffrage and which serves for a five-year term (although it may be dissolved by the president). The current government is a centre-left administration.

  Policy issues: The main policy challenges will be to reduce the structural budget deficit and stem the rise in public debt, while at the same time shoring up employment, improving competitiveness, promoting industrial development (and growth of small and medium-sized firms in particular) and ensuring a greater degree of intra-generational justice. These goals imply a need for wide-ranging reforms to the tax and benefits systems and to public administration, and an overhaul of the legal framework for the labour market. Social resistance to all of these changes will be strong.

  Taxation: The tax burden remains well above the EU average. The standard rate of corporation tax is 33.3%. The effective rate of corporation tax is significantly lower (even below 20%). The standard rate of value-added tax (VAT) is 19.6%, with reduced rates widely applicable. Income tax cuts over the past decade are being partly reversed, particularly for higher earners. The top rate of income tax currently stands at 41%, but the government plans a new 75% rate for the super-rich.

  Foreign trade: France is the fifth-largest exporter of goods and the fifth-largest exporter of services in the world. The value of goods exports in 2011 totalled US$590bn, while the import bill reached US$692bn, resulting in a trade deficit of US$102bn. As has been the case for several years, France posted surpluses on the services and investment income balances in 2010. Nevertheless, the current account recorded a deficit of US$54bn, or 2% of GDP.

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & transport equipment	37.1	Machinery & transport equipment	32.4
  Chemicals & related products, n.e.s.	18.3	Mineral fuels, lubricants & related materials	15.9
  Food, drinks & tobacco	12.1	Chemicals & related products, n.e.s.	13.7
  Mineral fuels, lubricants & related materials	4.8	Food, drinks & tobacco	7.7
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	16.8	Germany	19.0
  Italy	8.3	Belgium	11.2
  Spain	7.5	Italy	7.7
  Belgium	7.5	Netherlands	7.5

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  December 01, 2012

• Structure

  France: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  France: Country outlook

  France: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: François Hollande of the Parti socialiste (PS) was elected as France's new president in May 2012, and was rewarded with a comfortable parliamentary majority for the PS and allied left-leaning deputies at the general election in June. Six months into his presidency, Mr Hollande's popularity has fallen sharply and the government's image has been tarnished by the muddled handling of a number of issues, characterised by contrasting statements from ministers, policy reversals and undisciplined outbursts from PS backbenchers. The public standing of the prime minister, Jean-Marc Ayrault, has also suffered, although his position should be secure at least for the next year or so. Some of this fractiousness could be explained by the PS's lack of recent experience in office, but it also reflects the difficult economic environment that is shaping the policy agenda (see below), which has forced the government to admit that the need for budgetary rigour, as well as reforms to welfare systems and labour markets, is much greater than it had previously acknowledged.

  ELECTION WATCH: After electing Mr Hollande as president in May 2012, voters delivered an absolute majority for his party, the PS, at the general election in June. Having held its two most important elections in 2012, France now faces a relatively quiet electoral period before the next presidential and legislative votes, due in 2017. In the interim, second-order elections will serve as barometers of public opinion, but these will have little influence on governance at the national level.

  INTERNATIONAL RELATIONS: The debt crisis in the euro area will dominate foreign relations. Franco-German relations have cooled since the election of Mr Hollande, but little can be achieved within the euro zone (or the EU) without agreement between the two countries, and this will encourage ongoing co-ordination and compromise. Notably, Mr Hollande's commitment to respect French deficit reduction targets and undertake measures to promote competitiveness has been welcomed in Germany. In return, France expects Germany to allow the European Central Bank (ECB) to stand behind the sovereign debt of the weakest euro zone states, and thereby provide breathing space for discussions on possible future phases of integration. A number of items are already under consideration, including the scope of the proposed new common EU banking supervisor, new budget rules and the possibility of a distinct euro zone budget (though there remain wide differences over the size, purposes and financing of any "fiscal capacity"). Progress on these issues is likely to be slow even under the best circumstances, and Franco-German tensions could rise if France misses budgetary targets by a wide margin. Moreover, even a more integrationist stance by France will come with significant caveats. There remains strong reluctance within the PS (and among the broader public) to transfer fiscal sovereignty to the European level. An unwillingness to test public opinion on European issues means that the French government will seek to avoid significant changes to EU treaties. Without deeper political union, however, Germany will resist any substantial pooling of resources, which could hinder the development of a lasting solution to the debt crisis.

  POLICY TRENDS: An uncertain external economic environment and the dismal state of the public finances give the government little leeway in economic policy. The agenda will be dominated by three closely related challenges: the need to consolidate the public finances (and thereby keep financing costs manageable); to promote external competitiveness (and reverse a sharp decline in export market share); and to reduce high structural unemployment. Without action on all three fronts, France risks being dragged deeper into a spiral of rising debt-servicing costs, tight fiscal policy, sluggish growth, a deteriorating trade position and high, socially corrosive unemployment. The Economist Intelligence Unit expects only partial progress, notably as a result of a trade-off between budgetary consolidation and badly needed improvements to the business environment.

  ECONOMIC GROWTH: Real GDP growth has been flat during the first nine months of 2012. Indicators suggest that the economy will experience a mild contraction around the turn of 2012/13 with little prospect of sustained recovery next year. Exports will be weakened by sharp contractions in some main trading partners--notably Italy and Spain--with demand from Germany also expected to remain subdued. Rising unemployment and fiscal tightening will be a drag on domestic activity. Growth is forecast to revive gradually from 2014, assuming confidence improves, but it will be constrained by successive years of fiscal austerity. Even this anaemic outlook assumes that the euro area banking and sovereign debt crises remain manageable--the possibility that Greece (and other states) could exit the single currency is a serious downside risk.

  INFLATION: Consumer price inflation (EU harmonised measure) dipped to 2.2% in September, from 2.4% in August 2012, partly reflecting temporary tax reductions on fuel. Resilient global commodity prices and increases in gas tariffs in October suggest that inflation will remain fairly steady in the coming months. However, a negative output gap and weak pay pressures should ensure that underlying inflation remains benign (core inflation was 1.6% in September). Overall, inflation is expected to average 2% in 2013 and around 2.1% during 2014-17.

  EXCHANGE RATES: Although not our central forecast, there is a high risk that several countries will be forced to leave the euro in 2012-13. Such fears have caused flight from euro assets, and partly explain the volatility of the single currency, which has fluctuated in a range between US$1.20:EUR1 and US$1.35:EUR1 during 2012, standing at US$1.27:EUR1 in early November. Even assuming that it survives in its present form, the euro will remain volatile in response to shifting risk appetites, protracted economic weakness and lower reserve accumulation by China. We expect it to average US$1.26:EUR1 in 2013 and US$1.25:EUR1 in 2014-17, but there is a significant risk of sharp movements either way.

  EXTERNAL SECTOR: France's trade position has deteriorated sharply in the past decade. This partly reflects higher international oil prices, but the deterioration is sectorally and geographically broad-based, suggesting a loss of external competitiveness. The trade deficit is forecast to remain fairly large throughout 2012-17, but the overall current-account deficit should remain manageable as a proportion of GDP owing to large surpluses on the services and income accounts.

  December 01, 2012

• Forecast

  France: Country forecast summary

  Country forecast overview: Highlights

  • France's president, François Hollande, who was inaugurated in May 2012, is in a reasonably good position to push through his agenda, after the Parti socialiste (PS) and allied deputies won an absolute parliamentary majority at the general election in June.
  • In the short term, the PS parliamentary group is likely to be largely compliant, allowing the new government to implement a sharp fiscal tightening in its 2013 budget. The political climate is likely to deteriorate from 2013 as the impact of austerity measures is felt.
  • The public finances are in a poor state and France remains vulnerable to a loss of financial market confidence. The government will rely on tax increases to meet its 2013 deficit targets, notably affecting the wealthy, high-income earners and large businesses. A serious effort to implement structural reforms, particularly to the public administration and social security, will be needed if medium-term targets are to be met. Social resistance to reforms will be strong.
  • Public debt is on course to reach 90% of GDP by 2013. One ratings agency stripped France of its AAA rating in January 2012, and others will almost certainly follow suit unless the government can place the debt/GDP ratio on a downward path. Although we expect budget targets to be missed, the debt ratio should begin to fall from 2014.
  • Other economic policy challenges include tackling high structural unemployment and reversing the slide in external competitiveness. The government plans various schemes to support industrial development and promote innovation, but ambitions to reduce the tax burden for businesses from 2014 may need to be scaled back given the weak state of the public finances. The government's programme is relatively thin on other supply-side measures, such as steps to promote labour market flexibility, although talks between the social partners could yield modest results.
  • Real GDP is forecast to stagnate for a second successive year in 2013. Tax increases will weigh on household spending, and an uncertain economic outlook and tight credit will curb investment spending. Declining competitiveness against Germany and fragile demand in many key European markets suggest that real GDP growth will not exceed 2% in later years, even assuming that global conditions improve during 2014-17. The trade balance will remain in deficit, but will be partly offset by services and income surpluses.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	0.1	0.0	0.9	1.3	1.5	1.5
  Consumer price inflation (av; %)	2.2	2.0	2.1	2.2	2.1	2.0
  Consumer price inflation (av, %; EU harmonised measure)	2.3	2.0	2.1	2.2	2.1	2.0
  Budget balance (% of GDP)	-4.5	-3.5	-2.7	-2.2	-1.7	-1.2
  Current-account balance (% of GDP)	-2.1	-1.7	-1.6	-1.5	-1.5	-1.6
  Short-term interest rate (av; %)	0.6	0.2	0.6	1.1	1.8	1.8
  Exchange rate US$:€ (av)	1.28	1.26	1.25	1.24	1.26	1.26
  Exchange rate ¥:€ (av)	101.88	104.31	108.60	110.13	116.13	115.09

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  December 01, 2012

View detailed map

Country Briefing

Land area

Metropolitan France, 543,965 sq km; including 51.4% used for agriculture and 27% woods or forests (1997); excludes overseas territories and departments

Population

62.1m (population for metropolitan France at start of 2011)

Main towns

Population of urban areas in '000 (2007)

Paris (capital): 11,837

Lyon: 1,757

Marseille/Aix-en-Provence: 1,618

Lille: 1,164

Toulouse: 1,118

Bordeaux: 1,009

Nice: 1,000

Nantes: 768

Strasbourg: 642

Toulon: 601

Rennes: 578

Climate

Temperate, oceanic in the west, continental in the east, Mediterranean in the south

Weather

Average weather conditions at Météo France weather stations (based on 1999-2008 data): maximum average temperature, 19.8°C at Perpignan, minimum, 6.4°C at Dijon-Longvic; maximum average rainfall, 984 mm at Bordeaux-Merignac, minimum, 547 mm at Perpignan

Languages

French and—regionally—Provençal, Alsatian, Basque, Breton, Catalan, Occitan

Measures

Metric system

Currency

Euro (€) = 100 cents

Time

1 hour ahead of GMT

Public holidays

January 1st, 2nd; April 9th; May 1st, 8th, 17th, 28th; July 14th; August 15th; November 1st, 11th, 12th; December 25th

March 08, 2012