Hollande's eurozone assignment

FT.com

Six days to go in France. Crude antipathy seems to be the main reason French voters are likely to throw out their president. Nicolas Sarkozy does not look like a president, talk like a president, or act like a president. But there is a better reason why he deserves to be ejected. He won the 2007 campaign with a promise of ambitious economic reforms. He was one of the few European politicians with a mandate for big changes. He flunked it for a reason that already became apparent during the 2007 campaign: he was hyperactive. Reforms are for boring politicians.

We are still in the campaign and stuff can happen in six days. But Francois Hollande is so far ahead in the polls – and has been for a long time – that it is hard to see how Sarkozy can still pull off a surprise. It will take a lot more than a convincing performance on Wednesday in the scheduled television debate.

The two most important aspects of a Hollande presidency would be its impact on the French economy and its impact on the eurozone. On the first, I consider the effect broadly neutral. On the second, I think it would be significantly positive.

Sarkozy's two greatest failures as a reformer are his failure to implement a single contract for all French labour and to scale back public expenditure. Hollande is not promising structural reform either. Europe's experience is that such changes are more likely to be delivered by the left than the right and usually under stress. France will ultimately adopt those reforms, no matter who is president. Hollande should, however, resist the pressure from the left to raise the minimum wage and to reverse the increases in the pension age.

What about Hollande's threat of a marginal 75 per cent tax rate on incomes over €1 million? It is as politically astute as it is economically inconsequential. A few more rock stars may move from Paris to Geneva or Brussels. Some bankers on high bonuses may move to London. Some chief executives will pay the tax. But frankly, who cares? It would be hard to make the claim these days that France would lose any talent here. Most entrepreneurs will not be affected, as they do not amass their wealth in the form of earned income, let alone bonuses.

The main reason why I look forward to a Hollande presidency is for its impact on Europe. At present, all the large, and many of the small, eurozone countries are governed by centre-right governments. Angela Merkel is their undisputed queen. Hollande is not going to be a comfortable partner. On some issues, such as the fiscal pact, he will challenge her outright.

I would welcome a Hollande presidency on the grounds that it would introduce a much-needed shift in the toxic narrative about the eurozone crisis and its resolution. According to this narrative, the crisis was caused by fiscal irresponsibility. Its prescription is austerity and economic reforms. The tool to achieve the former is the fiscal pact, which Hollande has said he will not sign unless it is complemented by policies to boost economic growth.

I wish that Hollande would go further because austerity will snare countries in a low-growth trap. No set of structural policies will change this. I understand the political reason why he does not want to go further. He does not want his presidency to start with an existential fight with Germany – and the dreaded prospect of another panic attack by global investors.

France isn't the only country to watch, though. In the Netherlands the centre-right minority government collapsed after Geert Wilders, the leader of the populist Freedom Party, decided not to support its austerity programme. The Dutch government last week managed to strike a deal with a number of opposition parties. The Netherlands will now embark on a fairly brutal fiscal adjustment in the middle of a recession. Value added tax will increase to 21 per cent, depressing consumption. Health and education spending will be cut.

The big question is how the Dutch electorate will react to this set of policies when they go the polls in September. My guess is that we will see a surge of support for both the left and the right – which are united in their rejection of these policies. Wilders, who has previously focused on immigration, has now adopted the eurozone as his favourite subject through which to bash foreigners. The rise of political extremism in Europe is in part the consequence of stubbornness and stupidity among centrist elites.

It is a bit risky to judge someone before he is even elected. But I suspect Hollande is the beginning of a progressive insurrection.

Copyright The Financial Times Limited 2012.