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News Analysis: Will 2013 economic outlook bode well for Hollande?

English.news.cn   2013-01-14 20:57:35            

PARIS, Jan. 14 (Xinhua) -- With recession in the air, 19-year high unemployment claims, deteriorating competitiveness and lost triple-A credit rating, 2012 did not end well for French President Francois Hollande.

Hollande kicked off his presidency with an economic plan aimed at increasing taxes on banks, big firms and the rich to help him reduce the public deficit while pumping more funds into state-aided job creation.

Inheriting a gaping trade deficit, rampant joblessness and strained public finances, the president hopes tailwind will overcome headwinds during his term.

"If we set a target, it's to achieve it. I promise to get us out of the crisis," Hollande said.

FULL EMPLOYMENT "SOLE OBJECTIVE"

Hollande said fixing unemployment was his "sole objective in 2013."

"All our forces will be mobilized for a sole objective: to reverse the unemployment curve within a year. We will reach that at all costs," the French president stressed.

The president pledged to create 150,000 state-sponsored jobs for poorly-skilled youngsters from rural areas and 500,000 contracts to encourage companies to hire young workers.

He also unveiled a competitiveness pact to create up to 400,000 jobs in the next three months with a "growth rate at more than 0.5 percent."

But analysts said fragile growth and already high unemployment may hamper Hollande's plan for state-subsidized jobs.

Mathieu Plane from French Observatory of Economic Conjuncture said the measures "will simply limit the damage."

"What the government presented will not uproot the problem of unemployment. Despite the implementation of these decisions, we expect 11 percent of the labor force to lose their job this year due to wane growth. Without growth recovery, nothing can be done," he told Xinhua.

At the end of November, the number of jobseekers in France rose to more than 3.132 million, the highest level since 1997.

The increase in long-term joblessness, mainly among the young, also risks destroying human capital and having a negative impact on the country's growth.

RISKY OPTIMISM

Tackling the economic crisis has been a tough test for the Hollande's government.

The Socialists wanted to narrow the budget deficit by 398 million euros (532 million U.S. dollars) to 61.2 billion euros (82 billion U.S. dollars) by cutting public spending.

In 2013, the party expects the French economy to bounce back with the help of government packages worth 37 billion euros (48.23 billion U.S. dollars). It is hoped GDP would rise to 0.8 percent from an expected 0.3 percent in 2012 and public deficit lowered by 1.5 percentage points to 3 percent of GDP.

Weighed down by high unemployment and flagging competitiveness, France's 2 trillion euro economy is unlikely to reach such optimistic targets.

"We are not paying for mistakes of the past but also for current errors. It is well known that France will not meet its growth and deficit commitments neither in 2012 nor this year," Marc Touati, director of ACDEFI financial analysis bureau, said.

"I cannot see how France will be able to overturn the economic negative trend as the measures expected to help restore the public finances and create dynamism have been already announced but seems they have little impact on the country's morose economic climate," he added.

For 2012, the national statistics bureau Insee lowered the growth forecast of the French economy to 0.1 percent from a previous estimation of 0.2 percent. Zero growth is expected during the first half of 2013, well under rosy official estimates.

Analysts said an eventual below-target growth will raise the risk of the French president ending up as his predecessor Nicolas Sarkozy who quit the Elysee Palace with a record-low approval rating of 30 percent.

NO EASY TASK

The government has proposed a 75-percent tax for millionaires, as per Hollande's election promises.

But the policy prompted high-profile people threatening to leave France. France's wealthiest man and CEO of the luxury goods retailer LVMH Bernard Arnault earlier this year applied for Belgian nationality. Weeks ago, French film star Gerard Depardieu successfully got his Russian citizenship, an act widely considered to have been done to avoid high income tax rates.

Local media reported the number of French elites who applied for Belgian nationality has doubled over the past year.

Hollande suffered a setback when a French court last month ruled that a 75-percent income tax rate on earnings over 1 million euros a year went against the principles of equality in public charges.

But Hollande insisted that the French wealthy should help more in restoring public finances. He urged the prime minister to redraft new proposals on tax.

The French Junior Minister for Budget Jerome Cahuzac vowed a week ago that the new tax will be part of this year's finance law, and if approved, will be included in the government's budget for 2014.

Editor: Lu Hui
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