French Prime Minister passes Stability Program and takes his ‘café’ in Brussels this June

Manuel Valls, newly elected French Prime Minister (EC Audiovisual Services)

On Tuesday, Manuel Valls, the French prime minister presented the “Pact of Stability” in front of the French parliament. This was his first appointment with the French politics.

With a forecast of a big number of abstentions beforehand, Mr Valls attempted to soften the directive of austerity with several amendments. Moreover, last Monday he decided to increase taxes only for the pensions above 1200 euros in an act to “rationalise” the austerity cuts. In addition to that he also announced to increase the salaries of the least paid public servants.

Despite the efforts of the French political leader to make the austerity directive easier to digest, the abstentions did not miss from Palais Bourbon last Tuesday. After 30 minutes of votes, Claude Bartolone, President of French Parliament, announced that the pact of stability of 50 billion euros was approved by the French parliament with 265 votes FOR, 232 votes AGAINST and 67 abstentions. We should note here that 41 socialists chose the option ABSTAIN. Given the substantial abstention vote here, significant criticism on the power of the French elections’ result of last month was exercised.

It’s not only Manuel Valls though who is to blame for this significant abstention vote; it’s particularly Hollande’s policy. By the way, Manuel Valls knows that even inside his party he will have to negotiate hardly for each and every directive from now one. In any case, this vote was very important for the French prime minister, as it was a big test for the viability of his government.

Nevertheless, Manuel Valls was very satisfied by this result. He said : “It’s a decisive period for the recovery of the country and for the credibility of his voice”. With the result of this vote in hand the French government will avoid a conflict with European Council in June. The high number of socialists’ abstentions is expected to raise questions in Brussels about the stability of the French government. The plan that was voted describes the economic policy of France until 2017.

Standard and Poor’s

No matter if the socialists disagree with it and the French citizens don’t trust it, Standard’s and Poor’s acclaim it. The French pact of stability which has been approved by the French parliament convinced the rating agency to maintain the evaluation of the French debt at “AA” at short term and “A-1+” at long term with a stable trend.

Standard and Poor’s state: “We believe in the commitment of France regarding the reduction of the labour’s cost and enterprise taxes in order to improve the competitiveness of the economy”

The agency allegedly trusts the potential progressive reduction of the budget deficit under 3% of GDP by 2017. The cut of government expenditure will be the main drive for this achievement. However, the agency underlined that the French public debt remains quite high and it will increase until 2017. In last November 2013, Standard and Poor’s decreased the French rating from AA+ to AA, as the policies implied by Francois Hollande were not effective enough.

In spite of the ‘victory’ of the French prime minister, the main challenge is yet to come in front the European Council at the beginning of June. This will be a good crash test for the sustainability of the French economy and the debt management of the ‘Hexagone’. According to Brussels’ sources the possibility to impose sanctions against France as part of the budget discipline procedure launched in 2009, for the ineffective economic policies followed, is still significant.

The major political and historic position of France inside the European Union, though, leaves us to believe that the matter will be resolved over a ‘café au lait’ at the corridors of the Council.