President Hollande, France and the Future of French Defense


by Robbin  Laird

President Sarkozy was defeated in a close election on Sunday in France.  This second round of the voting occurred after the right fractured in voting for Sarko and Le Pen in the first round, a first round in which Le Pen (this time the daughter) did very well in the voting.

With 18% of the voting, the Nationalist Party had its best voting percentage in a Presidential election in its history.

Sarko was clearly unpopular with many in France, certainly on the left and on the right.  Hollande’s victory was as much about Sarko as it was about the Socialist Party.

Now what?

Hollande is certainly not a candidate for Charismatic Leader of the year.  And even more interesting is that he ran on reversing many of Sarko’s “reforms,” which were jolts to reality for the French.  The Euro Zone is struggling with its future, and Sarko focused upon reforms which sought to create a sense of reality about what France needed to do to strengthen its position within the Euro zone.

Hollande promises to reverse such bold moves as retiring at 60, rather than 62.  He has run to reverse austerity and to promote growth, with deficit spending and increasing the size of the French bureaucracy.

This puts him on direct collision course with the Germans and their concerns about the future of the Euro zone.

Coincidentally, the Greek voters with their voting on Sunday indicated that even they did not want a Greek solution, rejecting what is perceived as too tight of a fiscal regime.

Hollande’s victory was also a reminiscent path down memory lane.  The last Socialist President was the late President Mitterrand.  And voters, much like the U.S. voters supporting Obama in 2008 who saw a different form of President Clinton in their minds, were reassured about the past.

But a quick look back to then and now suggests that Hollande has his work cut out for him.

When Mitterrand became President in 1981, the situation was radically different from 2012.

First, France had its own currency.  The Franc could be devalued by the French government, the Euro cannot.

Second, there was a West and East Germany in 1981, now there is a Germany built around the Euro, Nato and the European Union.

Third, Mitterrand had time to play with the capital markets; Hollande does not. What took months in capital movement in 1981 takes minutes now.

Hollande has promised to bring “Europe on a track for jobs, growth and the future.”  He has reassured investors during the campaign that “I am not dangerous.”  He has reminded French votes that “each country has a soul, and France’s soul is equality.”

And like President Obama, President Hollande’s solution is to tax the so-called rich more and to promote social equality.  But with a decreasing per centage of the population paying taxes in both the United States and France, this historical formula which sounds good in populist terms, has a ring to it.

And unlike the United States which attracts significant global capital almost because the U.S. economy is stronger than others, the French have no such halo over their economy.  And even more challenging will be that any expansion of the French debt will quickly lead to questions of the bond ratings of French government notes, and the specter of debt costing more.

Hollande will be travelling a good deal in the coming months, including coming to the NATO summit in the United States this month.  No doubt, we will hear about continuity and “I am not dangerous.”  The challenge will be to move from telling us what he is not to what he is, and what wands he has in his bag for re-shaping the French fiscal future within a German controlled European economy.

As our colleague Harald Malmgren warned with regard to the Euro Zone fiscal pact:

The new fiscal pact adds little to the outlook for the Eurozone’s continuing viability.  Neither the fiscal pact nor the ECB’s liquidity largess will provide Euro member governments adequate flexibility to deal with inevitable European and global crises in the months ahead.  There is a core problem of the impact of policy fatigue associated with continuing Euro crises which is significantly reducing the political ability of Continental European governments to respond to other global challenges.

And the question of what Hollande will bring to the party to energize Europe and France to deal with the “other global challenges” is precisely where defense comes into play.

Hollande could push non-austerity funding into defense to buy more equipment and to generate jobs, certainly Sarko did this.

But the more likely path is to think of defense as part of the bill paying.  And notably, where Sarko made grand initiatives, whether they be NATO, joining into the Afghan operation or fostering the Libyan operation, Hollande will certainly be more cautious.

Will his caution and priority on social equality, and fiscal spending challenge the new French role in NATO?  Or will Hollande see a new NATO opportunity to show French leadership while re-calibrating French forces as they become more NATO-specialized so to speak?

What we do know it is not 1981.  Where Mitterrand faced the famous Euro missile crisis of 1983 and beyond, Hollande will get to face the Iranian nuclear crisis of 2012 and beyond. How will he respond?

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