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François Hollande’s Quinquennate: stopping or restoring?

Abstract

François Hollande’s five-year term of office has been marked by deep economic difficulties, but also by the beginning of this last year’s mandate. France will therefore have experienced subdued growth from 2012 to 2014, in particular as a result of fiscal consolidation policy, followed by moderate growth thereafter. The magnitude of the tax shock at the beginning of the five-year period, whose negative impact on growth had been underestimated by the government, was not consistent with a fall in unemployment during the first half of the mandate. The fiscal consolidation effort will have led to a substantial fiscal adjustment, but will have postponed the 3 % government deficit target to the end of the five-year period. According to the European Commission’s calculations, the French structural balance (i.e. the cyclically-adjusted balance) would have improved by 2,5 points over the period 2012-2016. However, this effort has not prevented public debt from reaching a historical peak, and from significantly diverging from that of Germany. Fiscal consolidation in France and Europe has had a marked negative impact, averaging 0,8 points per year between 2012 and 2017. The simultaneous nature of austerity policies in Europe has amplified their recessionary impact by depressing domestic demand, but also external demand. The economic policy of the Ayrault and Valls governments will have been marked initially by a period of significant increases in taxes on both companies and households, followed by a shift towards a supply policy in 2014. This policy, embodied in the Pact for Responsibility and the CICE, is bearing fruit at the end of the term of office with the re-establishment of company margins, but will have reduced households’ purchasing power and growth in the short term. After a period of marked deterioration, firms’ margins increased over the first four years of the five-year period by the equivalent of 1 point of value added thanks to the fiscal measures, and by a further 1 percentage point due to the fall in the oil price. The margin rate in the industry even reached a level comparable to historical record levels in the early 2000s. According to our forecasts, over the whole five-year period, unemployment within the meaning of the ILO would increase by around 100 000 people despite 720 000 job creation, due to insufficient growth combined with an increase in the labour force.

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