François Hollande, Louis XVI and the joker

Le Cercle Les Echos – April 2nd, 2013

France is Europe’s sick man. Everyone knows it, including the French. Jacques Attali, advisor to former President François Mitterrand, said it a few years ago, Louis Gallois, a high civil servant, former head of EADS, said it last year, the Cour des comptes – the equivalent of the Government Accountability Office – said it on many occasions.

The OECD said it last week, the IMF said it also through its regular Article IV consultations and, if this was not enough, the president of the Bundesbank said it last month. This is about as unanimous as you can get.

Yet, in an hour long interview, François Hollande made no announcement commensurate with France’s dire situation, merely repeating his oft-stated goal of inverting the downward slopping unemployment curve by the end of the year. The contrast between what is expected of him and what he says and does prompts one to ask: is he unwilling or unable to impose the structural reforms France needs or does he know something we don’t? In short, is he a Louis XVI or does he have a joker?

As noted by Churchill, “History is written by the victors”. Thus, French revolutionaries made it their duty to sully Louis XVI’s memory. He was an intelligent and peaceful man, truly concerned for the well-being of “his peoples”. But he lacked the vision and stature of a head of state. He was unable to decide on a strategy and stick to it. He first named Turgot Controller of finances but quickly replaced him by Necker. Four and half years later, he appointed Calonne before choosing Brienne who after three years ceded his place to… Necker. The king’s inability to govern together with the Court’s myopia and selfishness made the Revolution inevitable. Following on Louis XVI’s foosteps, will François Hollande appoint a new Prime Minister? There are many candidates: Michel Sapin (Turgot), Laurent Fabius (Necker), Pierre Moscovici (Calonne), François Bayrou (Brienne), etc.

If our parallel is incorrect, if François Hollande is no Louis XVI, it follows that he has a joker, an ace up his sleeve. What could it be? An unexpected rise in the growth domestic product prompted by the United States (the world engine) via Germany? Perhaps, but unlikely. In its January forecast, the International Monetary Fund projects a 2% growth rate for the United States in 2013. Mohamed A. El-Erian, Chief executive officer of PIMCO – one of the world’s largest fixed income fund – predicts a 1 3/4% rate for the 4th quarter. These rates are too low to have any kind of effect on the French economy. Asia enjoys a stronger rate of growth but its trade relations with France is thinner than with the United States. Thus, not much can be expected from this region.

Only economic growth creates employment. If François Hollande’s joker turns out to be an illusion, his credibility will be shredded to pieces by the end of the year.  His fate will resemble than of Louis XVI, less the guillotine. He’ll be forced to resign.


Jean-Luc Basle

Former Vice President Citigroup New York (retired)

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