The Great Debate

French President Francois Hollande’s predicament is, oddly enough, akin to one Alice faced in Lewis Carroll’s 19th century classic.

A year after taking power, Hollande is buffeted by the lowest popularity of any modern Gallic leader, a record number of jobless, a recession and shriveled business investment – while still needing to cut his budget deficit to hit European targets.

The protagonist of Alice in Wonderland, meanwhile, confused by her strange encounters down a rabbit hole, meets the Queen of Hearts, who tells her: “My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere, you must run twice as fast as that.”

The Socialist leader, says AXA Group Chief Economist Eric Chaney, is in a rabbit hole.

“The situation is much worse in France in the past year,” Chaney told me from Paris, where AXA, Europe’s No. 2 insurer, is based. “Italy and Spain are implementing reforms. France is doing nothing. So it is getting closer to the periphery [of weaker European nations]. What the queen said to Alice applies to France.”

Arnaud Montebourg, a member of the French parliament, has a problem with the iPhone. He thinks consumers in France should pay more for it than they already do. Why? Because, he says, the iPhone is made by “exploited” laborers in China who are taking away the jobs of French workers and the best way to redress that is by putting in place trade barriers and taxes that will stop “excessive imports.”

Then there’s Renault in Morocco. When the French automaker opened a new factory in Tangiers in February, Montebourg decried the move as “a humiliation for French industry,” because Renault hadn’t built the plant in France even though the French state is an important shareholder.

Montebourg’s protectionist stance – he calls it “deglobalization” – is well known in his native France, but now he’s unleashing it on the world. In the new Socialist government, Montebourg is the “minister for productive recovery,” a job whose precise perimeter remains hazy but that appears to cover large swaths of industry and commerce. His first official statement was an announcement that he intends to lean on companies including Shell, ArcelorMittal, Unilever and Peugeot, that are planning to close facilities or lay off workers in France.

His political allies wrote him off as a lightweight, “a pedal-boat captain in a storm” as one memorably put it. European leaders, including Germany’s Angela Merkel, have gone out of their way to avoid him, and the markets have been unimpressed by his declaration, to the City of London, that “I am not dangerous.”

Yet with opinion polls in France unanimously predicting that François Hollande will be elected president on Sunday, this is a good time to be asking just how bad his presidency really would be for France, for Europe and for the markets.

If he does win, will he be able to inspire confidence and rebuild and renovate the fragile economy, with its heavy debt, stagnant growth and rising unemployment? Or will he preside over its rapid descent into Greek- or Spanish-style chaos, as Nicolas Sarkozy, the incumbent at the Elysée Palace, keeps warning?