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In France, Hollande is losing the battle for the eurozone | Jonathan Fenby

Category : Business

The president’s woes matter outside France. The failure of his anti-austerity pledge has left the balance of power with Germany

It is just 11 months since France elected François Hollande as its first Socialist president since 1995, spurring a wave of expectation on the European left that he would lead a pro-growth offensive against the cheerleaders of austerity. When his party and its allies won an absolute majority in the national assembly, it seemed Europe might be acquiring a real challenger to the Berlin-Brussels-London consensus.

It has not turned out like that, of course, evoking inevitable reminders of the last Socialist presidency, that of François Mitterrand. He came to office in 1981 on a reflationary platform declaring that there was nothing wrong with dreaming; the trouble was that waking up proved very jarring, as the Hollande administration is now discovering.

Growth under the would-be expansionary champion has not risen; in fact, it has positively slumped. Finance minister Pierre Moscovici says it might total 0.1% this year compared with the official forecast of 0.8%. The economy contracted by 0.3% in the last quarter of 2012. France will miss the target of reducing its deficit to 3% of national output in 2013. Unemployment is at 10.6%, and much higher among young people.

France has been running a monthly trade deficit of €5 billion and its falling competitiveness in costs is widely acknowledged. The structural reforms the economy needs have been held back by vested interests, largely in the public sector. Hollande is the first president of the Fifth Republic who is a creature of his own party rather than its progenitor, limiting his authority, while his attempt to be a “normal” president sits ill with the quasi-monarchical character of the post crafted by Charles de Gaulle for himself.

What’s more, the political crisis that has blown up over a former French budget minister’s secret foreign bank deposits, and the revelation by the Guardian and other newspapers that Hollande’s presidential campaign treasurer has off-shore accounts in the Cayman Islands, gave the head of state his toughest test to date, exacerbated by his harping on the evils of money.

Already scoring the lowest opinion poll ratings of any president (27% in the latest survey), Hollande seems caught in a downward spiral. In a big television interview last week, he was earnest and spoke sense, but offered nothing to galvanise a jaundiced nation. At the weekend, the Elysée palace played down talk of a government reshuffle, but the prime minister, Jean-Marc Ayrault, cuts a lacklustre figure and some Socialists are calling for a referendum on public morality. The National Front’s Marine le Pen thunders about national decline and the hard-left leader Jean-Luc Mélenchon is mobilising his troops against “an intrinsically rotten system”.

Hollande’s woes matter outside France’s frontiers. The way the country is stumbling economically has shown just how hard it is for the European left to craft policies to redress the continent. Ed Miliband is likely to be rather more circumspect in his embrace of the beleaguered figure in the Elysée than he was in the first flush of Hollande-mania.

That leaves the field to belt-tighteners and bond markets. The chaotic outcome of the election in Italy reinforces this; having saved his country from a Greece-style crisis, the prophet of austerity, Mario Monti, trailed in fourth place, but the Socialists have been unable to form a government. The Five Star Movement of comedian Beppe Grillo is a recipe for chaos and, incredibly, Silvio Berlusconi still lurks on the fringes of power. The crisis of authority across southern Europe has been exacerbated by scandal allegations against the government in Spain while Greece remains mired in the morass of dodgy accounting. The terms of the bailout of Cyprus introduce a whole new level of uncertainty.

The wider effect of all this and, in particular, of Hollande’s troubles, is to reinforce Germany ahead of the federal elections in September. Berlin would prefer not to find itself in increasingly lonely leadership. But there is nothing Angela Merkel can do. Though her Christian Democrats have suffered setbacks at state elections and the polls show the CDU short of an overall majority – opening up the possibility of an alliance with the Greens against the Social Democrats – Merkel is personally popular. She enjoys support for her European policies. But the context is shifting.

Her country’s relationship with France has provided the backbone for the construction of Europe since the Franco-German friendship treaty signed by de Gaulle and Konrad Adenauer in 1963, but it is now in questionable shape. Merkel and Nicolas Sarkozy did not get on well, but the Frenchman knew better than to get out of step with the chancellor in public. Paris and Berlin can agree on some things, such as their rejection of David Cameron’s plan for a new European treaty to pacify his euro-sceptics. But Hollande’s proclamation of a pro-growth agenda in his election campaign widened the division; the Germans regard the pace of French structural reforms as too slow and take a dim view of France’s sympathy for critics of austerity in southern Europe.

If Hollande had been able to set out a strong pro-growth stall there might have been an equilibrium between the two big continental states, even if this discomforted Merkel. But his weakness makes that a remote prospect, with no serious alternative policies in sight to those put forward by the chancellor, despite popular resentment at austerity and the inner contradiction of expecting spending reductions to breed growth.

This means that a two-speed eurozone, divided between northern and southern states, becomes more likely, with Brussels and Berlin incurring rising unpopularity in the latter as anti-austerity election results underline the EU’s democratic deficit. France risks being caught in the middle, its heart with the south, its economic prospects tied to the north, while Cameron’s search for a fudge on Europe increasingly irritates leaders with more serious matters on their minds. Europe’s politicians have been adept at kicking the can down the road in this crisis, but the nature of the road is changing, abetted by the storm swirling round the Elysée.

Jonathan Fenby is author of The General: Charles de Gaulle and the France He Saved

Google sets up £52m fund to settle French publishing row

Category : Business

Internet firm and news groups were in dispute over whether it should pay to display content in its search results

Google will help French news organisations increase their online advertising revenue and set up a €60m (£52m) fund to finance digital publishing innovation, settling a dispute over whether the internet group should pay to display news content in its search results.

The agreement, announced on Friday by the French government and Google, will give the news organisations access to advertising platforms on the internet search leader.

European publishers losing money and readers had asked governments in France, Germany and Italy to make Google pay. The company threatened to stop indexing European news sites if it was charged for the content.

The company said that the settlement means it does not have to pay for “snippets” of news content that appear on a Google search page. France had appointed a mediator to lead negotiations with French publishers and they called the deal a “happy conclusion”.

Google’s chairman, Eric Schmidt, was present at the Elysée Palace with President François Hollande to sign the deal after what the president’s office said were “intense negotiations”.

“Our search engine generates billions of clicks each month, and our advertising solutions – in which we have invested billions of dollars – help them make money from that traffic,” Schmidt said of the deal on the Google blog.

The commercial agreement will allow media organisations to profit from Google advertising platforms, including AdSense and AdMob for mobile phones. Google sends some 6bn clicks a month to publishers around the world, representing a big money-making potential by selling advertising next to it and drawing in new readers.

Clicking on the ads generates revenue that will be shared. It was not immediately clear how the revenue will be split, but most was expected to go to the French publishers.

The growth of search engines as a way to find information has affected news organisations around the globe, and France is seeking to protect its own media groups and what they produce.

In October, Hollande discussed with Schmidt a possible plan for a new tax that would make search engines pay each time they use content from French media. However, Google threatened to bar French websites from its search results if the tax was imposed.

Germany is considering a similar law, and Italian editors have indicated that they too would favour such a plan. Whether the French deal could serve as a model elsewhere remains to be seen.

In December, Google ended a six-year dispute with a group of French-language newspapers in Belgium, reaching agreement on a business deal based on advertising as in France. The publishers had said Google had no right to post links to their articles on Google News without payment or permission and won in court. The parties later agreed to promote each other’s services by placing Google advertising in publishers’ media.

The Digital Publishing Innovation Fund is aimed at helping the transformation to digital publishing by supporting work on new projects to help publishers go digital.

Google has been in trouble in France over other issues, including Street View, its mapping service. Google acknowledged that vehicles taking photographs for the mapping service in several European countries also collected data from unencrypted wireless networks.

In 2011, French privacy authorities fined Google €100,000 for collecting personal data from wifi networks – including emails, web browsing histories and online banking details – from 2007 to 2010.

French government offers €20bn tax boost for businesses

Category : Business

PM says proposed package of tax credits and other measures is intended to give French companies ‘room to manoeuvre’

France’s president, François Hollande, sought to shrug off his business-bashing reputation on Tuesday with a €20bn-a-year (£16bn) package of tax credits and other pro-industry measures.

The prime minister, Jean-Marc Ayrault, surprised many by announcing that the government would accept much of the recommendations of a report by Louis Gallois, the former EADS boss, on making the French economy more competitive.

“France is not condemned to the spiral of decline. But we need a jolt at a national level to regain control of our destiny,” Ayrault said. “This is about giving our companies room to manoeuvre.”

Firms will be offered tax credits worth up to €10bn next year, rising to €20bn by 2015, to be financed by an increase in VAT and €10bn in public spending cuts, as yet unspecified. That was less than the €30bn-a-year cut in payroll taxes that Gallois demanded, but far more than many analysts expected. The rebates will be proportionate to the size of a company’s payroll, up to a maximum of two-and-a-half times the minimum wage, in an attempt to support jobs.

Amid rising concern about France’s global competitiveness, Hollande is keen to show that despite implementing a 75% top rate of income tax on the super-rich, he is on the side of business. Fabrice Montagne, of Barclays, said the announcement would “improve sentiment vis-a-vis the government’s economic policy, which will be welcomed by the president as approval rates are at significantly low levels”.

The International Monetary Fund said in its annual report on the French economy, published on Monday, that without radical reform France could slip behind Spain and Italy, which have been hobbled by lack of competitiveness against the mighty German economy.

The government’s proposals, which will have to be passed by parliament before it can be implemented, also include support for training and small business, and investment in innovation.

Why François Hollande’s popularity has plummeted

Category : Business

With only 36% of public support in a poll marking a record low, the president’s policies are seen as gaff-ridden and indecisive

When François Hollande became French president in May, he kept his old mobile phone number so old friends could still reach him to give their frank views. The first Socialist party president in 17 years may be regretting that now: six months after the victory street party at Paris’s Bastille, where he vowed to save Europe from one-size-fits-all austerity, his popularity is plummeting.

He has now broken the record as the most unpopular French president at the six-month mark of a mandate. Only 36% of French people have confidence in Hollande, according to the latest poll by TNS-Sofres for Le Figaro magazine. By comparison, the rightwing Nicolas Sarkozy had 53% approval ratings six months after his election in 2007.

Why has Mr Normal, an ordinary, decent bloke who pledged to rein in France’s huge public deficit while staying fair to the poor and crisis-hit, fallen so far so fast? Hollande’s misfortune in the polls follows an autumn of communications gaffes and perceived inaction by a government that has veered off and on message to the point where the public is no longer certain what the message is.

When Sarkozy fell from grace almost a year after taking office, it was because of his personality – he irked the electorate by flaunting his bling lifestyle, and was perceived as being more concerned about his whirlwind romance with Carla Bruni than the struggling French population. But if in early 2008, the public disliked Sarkozy as a person, they didn’t mind his policies and politics. Proof was the good popularity ratings of his prime minister François Fillon, who was well liked while putting Sarkozy’s plans into practice. Fillon still has high approval ratings as he battles to become the new leader of Sarkozy’s UMP party.

By contrast, Hollande’s opinion poll nose-dive is not about personal animosity – he has kept up his image as a modest president – it’s his politics, specifically his way of doing politics, which is under attack. The Socialist leadership and government is seen as confused, accused by its opponents of amateurism and inaction. Even the leftwing daily Libération recently dubbed Hollande and his prime minister Jean-Marc Ayrault “The Apprentices”.

Ayrault, a former teacher who used to drive a VW campervan, was well liked at the start. Yet he has sunk even further than Hollande, to 34% approval ratings. A series of gaffes haven’t helped – notably when he suggested this week that he was open to debating the future of the Socialists’ cherished 35-hour week before hastily contradicting himself under pressure from the Elysée. Or when the government tweaked a planned increase in capital gains taxes after a revolt from young entrepreneurs calling themselves “The Pigeons” (slang for mug or sucker).

All this created a public perception that the government thought problems needed to be solved, but wasn’t sure which ones, or how to do it.

Hollande and Ayrault are pushing through France’s harshest budget for 30 years – and despite telling voters that nine out of 10 of them wouldn’t feel the pinch of higher taxes aimed mostly at the rich and big business, public opinion clearly does fear it will feel the pain.

Hollande is forced to respect EU demands to cut the French deficit. But he must also persuade voters he has his own ideas. The old cliche of France being a country impossible to reform has given way to a searching quest for real structural solutions to rising unemployment, dying industry, low competitiveness, stuttering growth and the threat of recession.

Hollande favours slow, gradual “negotiation” in contrast to what he calls the “brutality” and headline-grabbing of the Sarkozy era. He has said there will be no “shock treatment” for Paris’s uncompetitive economy, despite an impatient Germany fearing France is the next sick man of Europe, but instead a slow, five-year-long approach. But his consensual approach has been construed in the public eye as inaction. To the point where Le Monde asked in a headline this week: “Has Hollande underestimated the crisis?”

Hollande stood firm in Le Monde, saying he was acutely aware of the trouble facing France and was confident that there would be an economic up-turn. “To exercise power nowadays is very hard. There is no longer any leniency, any respect. But I knew that,” he said.

French brewers hit by 160% rise in beer tax

Category : Business

President Hollande to push through legislation to fund social programmes – but brewers condemn plan as ‘kick in teeth’

The French president, François Hollande, is pushing through legislation to increase taxes on beer by 160% to help fund social programmes, as France struggles to contain a budget deficit hit hard by the economic crisis.

The tax increase will affect local brews and the 30% of imported beer the French drink. The change will push up the price of a beer by about 20% in bars and supermarkets, said Jacqueline Lariven, spokeswoman for the French brewer’s federation, Brasseurs de France.

The Brewers of Europe trade group described the measure as a “kick in the teeth”, as it follows a 6% fall in beer production and an 8% drop in consumption in the EU since the region’s debt crisis began in 2008.

Outside France, Belgium and Germany were likely to be hardest hit by the new legislation, said Pierre-Olivier Bergeron, head of the Brewers of Europe.

“This measure will affect all brewers, including small entrepreneurs,” he said. “This is a very shortsighted approach by penalising one sector.”

President Hollande said he hoped to raise €480m (£300m) from the tax increase on beer to boost medical insurance and elderly care.

Francois Hollande holds crisis talks after ‘worst week’ for bruised party

Category : Business

Factory closures and spending deficit have fuelled voters’ doubts over ability of president to lead country to recovery

President François Hollande will meet the heads of global economic organisations for crisis talks on Monday after suffering a series of damaging economic blows in what was his worst week since taking power five months ago.

The French leader has been hit by soaring unemployment figures, further factory closures and job losses, and plummeting popularity on top of growing fears that he and his Socialist government are failing to address the country’s problems. Members of the opposition right-of-centre UMP have accused them of being “amateurs”.

The meeting with chiefs of international organisations, including the International Monetary Fund, the World Bank, the Organisation for Economic Co-operation and Development and World Trade Organisation, has been billed by the Elsyée as a “sharing of views”.

However, sources told the Observer the economists will urge Hollande to press on with key structural reforms to improve France’s competitiveness on the world market and restore confidence at home and abroad. World financial institutions are said to be encouraged by Hollande’s efforts to reduce France’s large public spending deficit, but are seeking more from the French leader.

Hervé Boulhol, a senior OECD economist, said France needed “deep structural reforms” to improve public and global confidence in the country. “Then people will believe there is a clear political direction towards tackling unemployment, public spending and competitiveness. It is these three things that need to be addressed,” he said.

“At the moment, France is just above average in Europe, but if we are to avoid the extreme situations other countries have found themselves in, one has to find a way out of this crisis. There’s no room for complacency.”

As the French head off for an autumn break after weeks of increasingly gloomy news, commentators have warned of growing anguish and despair among voters and deep disillusionment with the country’s Socialist government.

“People knew there would have to be, as Churchill said, blood, sweat and tears and this was never going to be popular,” Jérôme Fourquet from the opinion pollster Ifop, which carries out regular surveys of the public mood in France, said: “They knew there would be tax rises and reforms, whoever was elected, and they were prepared to make the effort, even if painful, if it was worth it. But with the situation seemingly getting worse, people don’t see a light at the end of the tunnel and Hollande is not providing one. This has made people pessimistic, anxious and fearful.”

The French, pollsters admit, have a tendency to be “morose”, but the metaphor of an economically battered France as a ship in a storm taking on water, while passengers look desperately to the captain to save them, is often heard these days, along with concern that Hollande and his Socialist crew are not sufficiently experienced to handle the crisis.

In such a climate, the slightest faux pas has created a full-blown tempest. Last week prime minister Jean-Marc Ayrault suffered what was dubbed Black Wednesday after announcing the French Constitutional Court was to scupper a housing bill before the council had even sat down to decide. The government was bashed again for appearing to lobby against a report it had itself commissioned, on how to improve France’s economic competitiveness and plug a trade deficit that reached a record €70bn (£56bn) in 2011, after its author suggested a “massive” cut in business taxes.

News that unemployment, having broken the 3 million barrier in August, had leaped by 46,900 in September, the highest monthly increase since 2009, plus more factory closures and layoffs, made the general gloom even murkier.

Carine Marcé of pollster TNS-Sofres, whose recent survey discovered that 70% of French people thought things could only get worse, said the daily bad news had created a vicious cycle.

“Every day there is the announcement of more job losses and people worry even when it doesn’t affect them, because they think they’re next. And when people are worried, they consume less and it becomes the snake biting its own tail.” She added: “The French have been morose for 30 years; François Hollande fed them hope of things improving but the French had no great expectations. They knew their country had been hit by crisis and there was no magic solution.

“People are not convinced by the government, not convinced they are good enough. They used to say, ‘France is not Greece or Spain’, but now they are beginning to worry it is heading that way.”

Fourquet agreed that the popularity of the president and PM had suffered a “brutal and spectacular fall”, but said the causes were mostly out of their control. “The factors behind this are unemployment, redundancies, factory closures, the drop in spending power, the rising price of energy and petrol. All this weighs heavily on the morale of the French, but it’s not just a problem in France.”

Laurence Sauvage, national secretary of the leftwing Parti de Gauche, describes the atmosphere in France as “toxic” and warned it was conducive to driving voters into the arms of the extreme-right Front National.

“The Left has incredible, historic power in France… but the government is not rising to the occasion,” she said. “It is sad to see how afraid and unhappy people are.”

She added: “François Hollande promised the time for change was now. But there’s no change, just disillusion. If this continues, people will be beating a path to Marine Le Pen.”

Tobin-style tax gets green light from European commission

Category : Business

Biggest eurozone economies to carry out experiment to show whether financial transactions levy can aid responsible trading

It has been a long time coming. Four decades have passed since James Tobin, a Nobel-prizewinning US economist, first proposed “throwing sand in the wheels” of the financial markets by imposing a tax on transactions. Now the idea is within months of becoming a reality.

The European commission has given the green light for a eurozone “coalition of the willing” to go ahead with a financial transaction tax (FTT), likely to be levied at 0.1% on shares and bonds, and at 0.01% on derivatives.

For its supporters, a transaction tax is a classic no-brainer: it will punish those who plunged the world economy into its deepest slump since the 1990s and raise lots of cash from banks, cash that would otherwise have to be extracted from blameless members of the public. Many countries already have taxes on financial transactions (stamp duty, in Britain’s case), so this is hardly a revolutionary proposal.

Opponents say that it will add to the problems of the financial sector when it is already on its knees, raising the costs of funding and so leading to even weaker flows of credit to households and businesses; the fact that the FTT is not being universally levied, even within the eurozone, means it will be simple to avoid the tax; Frankfurt’s loss will be the City of London’s gain, because the UK’s position is that an FTT has to be imposed everywhere if it is to work.

The likelihood is that the FTT, in its current form at least, will neither be the magic bullet claimed by its supporters nor the wrecking ball claimed by its detractors: it is too small to “throw sand in the wheels” (Tobin’s original plan was for a much heftier tax). If it does succeed in reducing churn in financial markets, it won’t raise the sums expected by the 10 countries involved.

On the other hand, the idea that the FTT is going to be the final straw for the financial sector also looks well wide of the mark. In the light of what has happened over the past five years, a transaction tax is going to be well down the list of worries for Europe’s banks. Avoiding paying it could prove to be more trouble than it is worth.

Both sides of the argument should, however, welcome the arrival of the FTT. Why? Because we will soon know who is right and who is wrong. A tax that includes the four leading economies of the eurozone – Germany, France, Italy and Spain – is big enough for the results to carry significance.

We are about to witness a controlled experiment that the rest of the world will be watching with some interest. If the FTT does generate billions of euros in extra revenue for Angela Merkel and François Hollande, other countries will be quick to seek a piece of the action. If it doesn’t, the idea will die a quick death.

EU leaders let banking supervision deadline slip at summit – live

Category : Business

Leaders of France and Germany hold unscheduled meeting at start of Brussels summit, hours after tens of thousands of people march in Athens

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Eurozone crisis live: Spanish bank stress test show €59.3bn blackhole

Category : Business

Spain’s bank stress tests show that seven institutions need more capital, hours after France announces

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Nuclear row splits French government

Category : Business

François Hollande under pressure over economy, eurozone treaty and minister’s comments that nuclear power was the future

Cracks have appeared in the new French government after a Socialist minister made a gaffe about the future of nuclear power and tensions mounted over the thorny issue of parliamentary ratification of the European budget treaty.

The Socialist president, François Hollande, and his prime minister, Jean-Marc Ayrault, have seen their popularity ratings fall over the summer as the French economic crisis deepens. Already struggling with a difficult return to work after the holiday season, the government has now been shaken by the row over nuclear energy.

The Green party, which has two ministers in the Socialist-led government, was taken aback after the minister for industrial recovery, Arnaud Montebourg, described nuclear power as an “industry of the future”, seeming to cast doubt on a commitment to shut power stations and reduce France’s devotion to atomic energy. France is the most nuclear-dependent country in the world, with 75% of its energy coming from nuclear. In a deal with the Greens before this year’s parliamentary and presidential elections, Socialists promised to reduce the share of nuclear in French electricity production to 50% by 2025, shutting 24 nuclear reactors. But so far, only one of France’s 59 nuclear reactors, at Fessenheim in eastern France, is due to be decommissioned.

Montebourg called nuclear energy a “tremendous asset” with a key future role, saying: “We need energy that is not too expensive.” He was backed by the interior minister, Manuel Valls, who said nuclear was undeniably a part of the future of French industry.

The Green MP Noël Mamère condemned the comments as a provocation. Another Green MP, Denis Baupin, said the government was “divorced from reality”. The prime minister tried to play down the row, and Montebourg’s views were presented as personal opinions. But the timing was unfortunate, two weeks before the government’s big environmental conference, designed to convince a sceptical environmental lobby that Hollande is serious about green issues.

Meanwhile, the Socialists are trying to contain internal divisions over the ratification of the new European budget treaty. Relieved that the French constitution will not need to be modified to accommodate the treaty, the government must still submit the text to a parliament vote in October.

But some in the Greens and on the left wing of the Socialist party have misgivings about losing sovereignty to Brussels and imposing austerity rules which they say would be socially and economically damaging to France.

Jean-Luc Mélenchon’s leftist Front de Gauche and Eva Joly, the former Green presidential candidate, have called for a referendum. The debate around the treaty ratification is already reopening political wounds from the sparring about the 1992 Maastricht treaty and France’s 2005 no vote against the EU constitution.

The prime minister has taken a hard line, telling Socialist MPs they should fall in line with the government amid “risk of a European crisis”.

Meanwhile, in its first key move after the summer break, the government on Tuesday temporarily cut the price of petrol and diesel by up to six cents a litre to help French households. The cost will be shared between oil companies and the state, which will lose €300m in tax revenues. The move stopped short of Hollande’s campaign promise of a freeze on fuel prices, which had been seen as too complicated and a legal minefield.