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Kiss Austerity Goodbye

13 minute read
Bryan Walsh

There are surely people who are ecstatic that François Hollande, 57, will be the new President of France — perhaps the members of his immediate family or the residents of the central French city of Tulle, where he spent seven years as mayor, who gave him more than 75% of their votes. But the mild-mannered Hollande, who narrowly beat incumbent Nicolas Sarkozy in a runoff election on May 6, became the first Socialist to lead the French Republic since 1995 as much for what he isn’t as for what he is. He isn’t Sarkozy, the temperamental conservative with the supermodel wife and ostentatious taste for wealth who polarized France during his five years in the Elysée Palace. He isn’t Marine Le Pen, the far-right firebrand with xenophobic views on Islam and immigration who won nearly one-fifth of the votes cast in the first round of the presidential elections. Hollande, who assumes office with no experience in national government, won control of the world’s fifth largest economy by promising to be a “Président normal.”

But these are not normal times. Hollande was also propelled into power on a wave of public unhappiness with the fiscal-austerity policies driven by Sarkozy and German Chancellor Angela Merkel. It wasn’t just Sarkozy whom France was rejecting; it was Merkozy, the tight partnership between the two leaders who have led a take-no-prisoners budget-slashing crusade to save the European monetary union — a strategy that is now being questioned in both political and economic circles. “In all the capitals, beyond government leaders and state leaders, there are people who, thanks to us, are hoping, are looking to us and want to put an end to austerity,” Hollande told a cheering crowd in Paris after the election. “Europe is watching us. Austerity can no longer be the only option.”

France isn’t the only country having second thoughts about the austerity ideology that has dominated European fiscal policy since the Greek debt crisis began in 2009. In Britain, Prime Minister David Cameron’s Conservative Party suffered heavy losses in local elections as voters rebelled against spending and welfare cuts. In Italy, voter discontent with fiscal austerity is bubbling up with rising support for protest parties, including one headed by a comedian who wants to see the country default on its debt. And on the same day as the French election, voters in Greece overwhelmingly repudiated European austerity policies and the lawmakers forced to implement them. Greeks punished their ruling parties in parliamentary elections, turning to an array of anti-bailout parties on the far right and far left and leaving Greek politics in disarray. “European leaders and especially Merkel have to understand that austerity policies have suffered defeat,” said leftist leader Alexis Tsipras, whose young party came in a surprising second and was given an opportunity to form a government.

Though another round of elections may be required to get one, a campaign promise by Tsipras has had broad resonance — to cancel the bailout-loan agreement that imposed severe economic pain on Greece, an act that would almost certainly intensify the European debt crisis and could even lead to a full-scale Greek default and exit from the euro. That in turn could further destabilize the increasingly fragile European monetary union and worsen recessions in much larger countries like Italy and Spain. For now, Germany is standing firm, but the pressure to relent is growing on Merkel, as it will on the new President of France, who has promised a kinder, gentler response to Europe’s troubles. “It can’t all be sacrifice. Effort must be made to nurture, and with it hope,” Hollande told TIME in a recent interview. But if there’s anything that’s become clear, it’s that Europeans aren’t hopeful. They’re angry, and it’s not clear that Europe’s political elite can cool that anger.

Flanby to the Rescue

The French presidency is one of the most powerful political positions in Europe, which makes Hollande’s background all the more unusual. Before he stepped down as head of France’s Socialist Party in 2008, Hollande’s highest-profile national positions were as a junior adviser to then President François Mitterrand in the 1980s and a member of Parliament for several terms. The mother of his four children, former Socialist Party head Ségolène Royal — who lost to Sarkozy in the 2007 presidential elections — had long been better known than the colorless Hollande. (He and Royal separated in 2007, and since then Hollande has been with Valérie Trierweiler, a journalist for Paris Match.) Though he has the first-class educational training of France’s bureaucratic elite, his résumé compares poorly with that of Sarkozy, who came to national attention as France’s youngest mayor in 1983 and served numerous terms as a government minister before becoming President in 2007. Averse to confrontation, Hollande has been nicknamed Flanby, after the wobbly caramel custard, including by some members of his own party. “He doesn’t have the stature to be President,” sniffed former First Lady Bernadette Chirac in March as she pressed the bid of Sarkozy (who headed the Interior Ministry, among other portfolios, for her husband Jacques). “Being President requires a lot of experience, long political training.”

But after five years of Sarkozy’s brash, even vulgar style, Hollande’s genial dullness came as a relief to many in France. While somewhat stiff in formal settings, Hollande can be engaging and amiable in person and is known for zipping around on his scooter, which he’ll likely have to give up riding now. Compare that with the bling-bling presidency of Sarkozy, who famously vacationed after his 2007 win on the yacht of a billionaire friend in the Mediterranean. “François dislikes brutality, avoids imposing his will on people and much prefers motivating people into doing what he wants them to do,” says Bernard Poignant, the Socialist mayor of the city of Quimper and a close friend of Hollande’s. “He usually gets what he wants, which we’ve now once again seen.”

Even so, Hollande had to struggle to connect with a deeply dissatisfied French public. Two extreme candidates — Le Pen and the hard-left Jean-Luc Mélenchon — earned more votes combined than Hollande in the first round of the elections. In the end, Hollande was able to edge past Sarkozy in the second round by tapping into French anger about finance and wealth that had only grown as the debt crisis worsened. In 2006, Hollande admitted, “I don’t like the rich,” and in January he declared that “my real enemy is the world of finance” and promised to raise income taxes on the affluent — including a 75% rate for those earning more than $1.3 million annually. (The current rate is 41%.) He pledged to create 150,000 state-subsidized jobs for youth to battle an unemployment rate nearing 10% and to roll back Sarkozy’s major achievement, reform of the swamped pension system, by returning the retirement age for some workers to 60 from 62. It was a platform made for France’s 99%. “There need to be signs of fairness and of equal treatment across society,” Hollande told TIME on a campaign outing.

Still, while his campaign slogan was “Change now,” that change may have been more about rhetoric than actual policy, especially when it comes to dealing with Europe’s toxic debt crisis. He has been a vocal opponent of the Sarkozy-Merkel austerity-only policies designed to save the European monetary union, but supporters note that Hollande advised mentor Mitterrand ahead of the euro’s conception in the 1990s and has no desire to kill the currency. For all his leftist talk on the campaign trail, Hollande is center-leaning and has acknowledged the need to reduce France’s huge $2.2 trillion public debt. While the German Chancellor will surely miss Sarkozy — she made the unusual move of publicly supporting her counterpart’s re-election bid — supporters say she may find Hollande more cooperative than she expects. “They’ll get on fine,” predicts Alain Duhamel, a French political analyst.

But that assumes that Merkel will take Sarkozy’s loss and the simultaneous revolts in Greece as evidence that Germany needs to compromise on austerity. There’s no indication yet that Berlin is softening, though it’s clear austerity without growth stimulus can’t keep the troubled euro viable. Hollande has proposed a range of pro-growth policies, including the creation of a public investment bank and tax breaks for small business, incentives for companies to retain workers and deployment of E.U. financial institutions to ease the euro crisis and underwrite E.U. infrastructure projects.

Still, investors who are jittery about rising government debt will watch to see if the new President weakens rather than strengthens the nation’s finances in an attempt to stimulate growth. While Hollande has called for a renegotiation of the compact on debt reduction that European leaders adopted in March to add growth capacities, Merkel considers the matter closed. At a news conference on May 7, she explained her rationale for holding the line on spending, arguing that the debt crisis was a consequence of coordinated stimulus spending in the first phase of the European financial crisis. “We are in the middle of a debate to which France, of course, under its new President, will bring its own emphasis,” she said. “But we are talking about two sides of the same coin. Progress is achievable only via solid finances plus growth.”

Europe will find out soon how Hollande and Merkel get along — the new French President is set to visit Berlin shortly after his inauguration — though the fact that mostly British newspapers have already begun to refer to their partnership as “Merde” does not bode well. Still, the rumblings of discontent with German austerity are only going to grow louder as Europe’s economic outlook grows bleaker. Even Italian Prime Minister Mario Monti, who was not elected but appointed by Parliament, said the outcome of the French vote was a “call for a reflection on European policies.” And if the European elite think the French are angry, wait until they hear from the Greeks.

Protest Vote

There are times when an election is less about forming a government than it is about registering a barely coherent cry of rage. That’s what happened in Greece on May 6, when voters who had grown increasingly angry over the straitjacket fiscal policies forced on them by the European bailout had the chance to make that unhappiness known at the ballot box. By the time the smoke cleared, PASOK and New Democracy, the two parties that have dominated Greek politics for nearly 40 years, had received a combined 32% of the vote — less than half of what they had garnered during the previous elections, in 2009. Angry voters even gave 7% of the vote and 21 seats in Parliament to the neo-fascist Golden Dawn party, which is fond of using Nazi symbols and salutes. No party or coalition had enough support to form a government. “What the electorate wanted to do was punish,” says Kevin Featherstone, a professor of contemporary Greek studies at the London School of Economics.

Given the amount of punishment the Greek people have endured over the past few years — made worse by the austerity measures pushed through to satisfy euro-zone demands — you can’t really blame them. Unemployment has spiked to a record 21%, more than 100,000 small businesses have closed since the beginning of the crisis, and wages and pensions have been slashed. Gangs of hooded protesters take to the streets of Athens during demonstrations to vent their anger, attacking banks and clashing with tear-gas-throwing riot police. Homelessness is on the rise, and the government says the number of suicides has jumped by at least 40% in the past two years. “This has got to end before the country completely collapses,” says Aris Papadopoulos, 36, a computer scientist who lives in Athens. “Everyone is going to leave for jobs abroad because there won’t be anything left for Greece.”

Papadopoulos voted for Syriza, a coalition of radical left and green groups led by Tsipras, a young engineer known for shouting down pro-bailout politicians in Parliament. About half of Greeks voted for anti-bailout parties. Whoever forms a governing coalition, it’s clear that the Greek elections will have ramifications beyond Athens. “We want to send a message to Europe from the country where austerity policies started,” Rena Dourou, a parliamentary deputy for Syriza, told TIME after the elections. “We want to stay in the euro zone so we can change the euro zone’s policies, because those policies are unfair to people. But we won’t stay if Europe gives us no choice but austerity.”

Could Greece really abandon the euro after all this? It’s looking increasingly possible. In a May 7 research note, Citigroup analysts pegged the chances of a Greek euro exit at 50% to 75% over the next 12 to 18 months, largely because there’s no viable government that looks willing to implement austerity measures required by Greece’s creditors. If no ruling coalition is formed soon, there will be new elections next month, and political scientists say centrist parties may stand a better chance now that Greek voters have had the chance to vent their spleen. “In the next stage, they’re going to vote with solutions in mind,” says Featherstone.

Perhaps, although the evidence is mounting that European voters know the solutions needed to keep the euro going but simply don’t like them very much. It’s not just the worrying rise of far-right and far-left parties, which are united by an outright hostility to the idea of European political and fiscal unity; there appears to be a growing disconnect between public support for the euro and public support for the harsh measures being prescribed to save it. No one wants to endure the budget cuts and wage decreases, and any leader who tries to stand up for those sacrifices risks earning a ticket out of office. As long as that’s the case, the European debt crisis will remain inescapable — and democracy will keep endangering the euro.

But if democracy can be messy, it has the benefit of letting leaders know exactly how their citizens feel and how much they’re willing to bear. The anti-austerity wave that helped elect Hollande and pulverized the Greek government is the sort of political siren that can’t be ignored. European voters are rejecting severe austerity not just because it’s painful but also because it isn’t working: borrowing costs remain high while economic prospects remain bleak for many of the euro zone’s weaker economies. Hollande may not be a forceful personality, but he is in a unique position to jolt Merkel into permitting a glimmer of stimulus — and hope as well. “People need to see that while the collective effort may be long and difficult, it’s going to be fair and involve everyone,” Hollande told TIME. And if Europe’s leaders can’t do that, Europe’s voters know what to do.

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