France’s week update

by Véronique Queffélec on décembre 17, 2012

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EU Leaders reached no agreement on the EMU roadmap, postponing a decision until the June 2013 Summit. But pushed ahead on Banking Union. After welcoming the EcoFin agreement on the SSM, the Summit conclusions say that proposals for a Recovery and Resolution Directive and for a Deposit Guarantee Scheme Directive are to be concluded before March 2013 and then agreed with the co-legislators by June 2013. The EU leaders also stressed the ability of the ESM to recapitalize banks directly and agreed to provide a “definition of legacy assets”.France wants Europe to adopt more growth supporting measures
French President Francois Hollande welcomes the deal on “oversight for all banks”, arguing that Europe would provide “solidarity” on bank failures. He noted that the bank deal and Greek aid had made it a “good day for Europe”. He also rejoiced at the prospect of “major steps” on euro political reform as of 2014. Turning to the topic of supporting growth, he stressed the need for “policy coordination to boost activity” and reiterated his view that “future investments should be excluded from deficits”. Hollande is happy that ultimately, the ECB has been given the power to oversee all banks, even if the day-to-day supervision will be limited to the systemically relevant institutions.
French Government unveils its anti-poverty plan
The Government launched its anti-poverty plan targeting some 9 million people, essentially the working poor made up of the more vulnerable workers and the young defined as earning less than €964 a month in 2010. The various measures presented by Prime Minister Ayrault aim to increase minimum assistance payments (the RSA) by 10% over five years on top of its inflation adjusted characteristics, add to the provision of emergency housing, broaden the eligibility criteria for universal health care and tackle extreme indebtedness. Various Government sources suggest that the plan would require between €2 and €2.5 billion of financing, with the modalities to be unveiled in January.
This Social Pact focusing on the most vulnerable was seen as being necessary by the parliamentary majority in light of some of the sizeable concessions made to firms and businesses whose total tax bill is largely left unchanged after the introduction of the payroll based tax credit as part of the Competitiveness Pact. This will likely add to the financing difficulties that the Government will have to face, unless the strategy to be unveiled in the coming weeks were to rely on more expenditure reduction efforts.
Hollande’s waning popularity and employers’ concerns about growth and employment
Opinion pollster IFOP notes that at the end of his mandate, President Sarkozy was scoring better with voters’ opinions than Hollande currently on key topics such as ‘defending France’s interests abroad’ and ‘implementing an effective policy against debt and deficits’. IFOP head Jerome Fourquet argues that the first months of the Hollande presidency have crystallized the doubts that French voters had about the President, particularly their impression of his indecisiveness and hesitancy. Separately, Laurence Parisot, head of the Medef employers’ association, while applauding the Government’s ‘volte face’ on firms’ payroll tax credit of €20 billion, warns about the impending recession and worsening unemployment dynamics in the first half of 2013. Hollande’s popularity problems should not be an impediment to additional structural reforms, unless he is confronted with widespread popular discord.