New blow for French leader; will he stay course?

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Photo - French President Francois Hollande attends the opening session of the Nuclear Summit in The Hague, Netherlands, on Monday, March 24, 2014. (AP Photo/Yves Logghe, Pool)
French President Francois Hollande attends the opening session of the Nuclear Summit in The Hague, Netherlands, on Monday, March 24, 2014. (AP Photo/Yves Logghe, Pool)
News,Business,France,Francois Hollande

PARIS (AP) — France's unpopular president faces a moment of truth after his Socialist Party suffered a drubbing at the polls and the far-right made advances across the country.

Will his package of spending cuts and reforms wither and die like so many previous efforts to reform France's economy, following the setback suffered by his party in the first round of municipal elections on Sunday?

France, Europe's number 2 economy, has been generating a lot of negative headlines and Francois Hollande thinks it needs to move with the times to boost growth and bring down sky-high levels of unemployment.

His new approach, outlined earlier this year, is not what he promised voters in the presidential election of 2012. His stump speech then defended the country's welfare and labor benefits and a tax squeeze on the rich.

In anticipation of a setback in the elections in towns and cities, Hollande appeared determined to stick the course, telling journalists that France had to lower its labor costs and boost its competiveness. He also promised decisions on spending cuts by the end of April.

More clarity may well emerge after the second round of voting next weekend — in France, there's another round of voting if no one party gained a majority. Hollande is widely expected to reshuffle his government even though the municipal elections don't directly affect his ability to govern and push through policies.

At the start of this year, Hollande laid out his new approach, promising a 30 billion-euro ($41 billion) payroll tax cut by 2017, in exchange for more investment and hiring by companies. In addition, he announced 50 billion euros in cuts in government spending.

His blueprint has gone down well among many officials in the European Union who have worried that France's indebted economy could hobble the region's economic recovery.

France's recovery has been fairly anemic: It has an unemployment rate of more than 10 percent; its debt burden is running at over 90 percent of its national income and foreign direct investment dropped 77 percent in 2013, according to the UN.

Amid that backdrop, the Socialists faltered in Sunday's elections with the conservative UMP party doing best in results described by commentators as a "slap in the face" of the French president. Perhaps most dramatically, the Socialists came third in Marseille, France's second-biggest city behind the UMP and the far-right National Front.

Samia Ghali, a Socialist candidate in Marseille, told BFM television that there's an impression that "the government is on one planet and France on another. I think they have to come back to earth and take account of the situation of the French."

Economists, such as Marc Touati, president of French business consulting group ACDEFI, said France must do the reforms that so many others, particularly in the 18-country eurozone, have pushed through over the past few crisis-afflicted years.

France, said Touati, "must take draconian measures to restore confidence and growth— which means: cut taxes, and in order to do that, you must cut public spending."

And Hall Gardner, a professor of politics at the American University of Paris, indicated that he's going to find it tough even if he pushes through with his plans to make France more dynamic.

"Hollande has created a kind of bureaucratic vacuum, nothing seems to be moving in a very dynamic way," he said.

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