MacroScope

Hollande talks the talk

By Mike Peacock
January 15, 2014

Francois Hollande managed to bat off questions about his private life (how successful he is in holding that line depends on the attitude of the French media which yesterday was nothing but respectful) and focus instead on a blizzard of economic reforms.

Skating past the French president’s call for an Airbus-style Franco-German energy company which left everyone including the Germans bemused, there was some real meat.

Hollande reaffirmed his “responsibility pact” to cut taxes and red tape for companies, saving them 30 billion euros, in return for a commitment to hire more people and increase training.
He also promised a further 50 billion euros in spending cuts in 2015-17 on top of a planned 15 billion this year, saying they could be achieved by making national and local government more efficient while preserving France’s generous social model.

Of course, it’s all about delivery rather than rhetoric and it will be some trick to pull off hefty spending cuts that do not undermine the social model. But it will be interesting to see whether Berlin and Brussels in particular think Hollande is now moving in the right direction, having been underwhelmed by his labour and welfare reforms so far.

Is this his Mitterrand moment echoing his political hero’s abrupt shift in the 1980s to halt a policy of nationalisation and stronger worker benefits as public finances crumbled? It’s probably not that dramatic though doubtless it is more than enough to enrage the unions. Either way, for this presidential term at least, it feels like a now or never moment. Falter and the euro zone’s recovering economies will start looking like better bets. 

Spain certainly appears to be on the road to recovery, if you can call it that with around a quarter of the workforce without a job. Finance Minister Luis de Guindos said on Monday that growth hit 0.3 percent in the final quarter of the year, the second quarterly expansion in a row which firmly banishes the country’s long recession. Its borrowing costs have tumbled to four-year lows in a new year bond rally.

Today, 250 investors from 15 countries, executives from 37 large Spanish companies and the government’s economy and industry ministers will attend a two-day investment event – an important gauge of sentiment. Tomorrow the government will try to cash in by selling up to 5.5 billion euros of bonds following an above-target sale last week.

Portugal will sell up to 1.25 billion euros in 3-month and one-year Treasury bills a week after it pulled of a successful bond issue. Yields have fallen to around the lowest levels since 2010, before the country’s bailout which it is seeking to exit this year, and T-bill yields in the auction are expected to drop.

German will sell up to 5 billion euros of five-year bonds while GDP figures for 2013 as a whole are likely to show anaemic growth of 0.5 percent. Europe’s largest economy promises to fare better in 2014 and the World Bank has raised its outlook for the global economy for the first time in three years, giving stock markets a fillip.

Voting continues on Egypt’s new constitution though results are not expected until late in the week and there is not likely to be much of a surprise. Approval of the rewritten constitution, which strips out disputed Islamist language while strengthening state institutions that defied President Mohamed Mursi: the military, the police and the judiciary, appears a foregone conclusion. A strong “yes” vote will likely prompt General Abdel Fattah al-Sisi, who toppled Mursi in July, to contest elections which he would be favourite to win. The stock market has rallied in anticipation of a more stable political order.

Plenty to chew on from Turkey today. President Abdullah Gul will hold a news conference with his Slovenian counterpart Borut Pahor. We will be looking for any comment on the ongoing row over government plans to overhaul the council which appoints judges and prosecutors in response to a corruption investigation swirling around the government. Gul has reportedly asked Prime Minister Tayyip Erdogan to seek a compromise with the opposition on the reform.

Separately, Finance Minister Mehmet Simsek will hold a news conference to announce December and 2013 budget data. He may comment on the economic impact of the scandal. And Deputy Prime Minister Ali Babacan, who is actually in charge of the economy, will make a speech at a conference of Turkish ambassadors.

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