May 16, 2012

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TSG IntelBrief: A New Chapter in French Politics

As of mid-May 2012, The potential foreign and economic policy changes — real or perceived — of newly inaugurated French president, François Hollande, will present global policy makers in both the public and private sectors with a substantial shift in the status quo across a wide spectrum. From an accelerated timetable for the withdrawal of French troops from Afghanistan to a possible reassessment of both its call for further action against Syria and its fiscal priorities vis a vis the European Union (EU), Hollande's new government faces an unenviable number of pressing issues, each with a need for near-term decisions that carry long-term consequences.

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A New Voice in NATO

When Hollande visits the United States later this week for the NATO conference, where leaders will examine future roles and funding for member nations in Afghanistan, he will do so having been elected on the promise of pulling all of France's 3600 troops from that country by the end of 2012, a year earlier than the schedule set by his predecessor, Nicolas Sarkozy. These troops help provide training not only for Afghan army and police units — a critical element upon which the success of NATO's endeavor largely lies — but also for other International Security Assistance Force (ISAF) nations as the 2014 withdrawal approaches. In addition to facing the considerable logistical challenges in transporting both personnel and state-of-the-art equipment back to France, the earlier withdrawal of French troops will complicate an already daunting mission and timeline, an issue that will no doubt be addressed during the NATO conference to ensure minimum disruption.

While at the NATO conference, Hollande will likely reiterate his lack of support for  NATO's missile shield, a topic of such importance to Russia that newly re-inaugurated president, Vladimir Putin, declined to attend the conference despite Russia's large role in logistically supporting NATO's withdrawal from Afghanistan. However, unlike Russia's concerns over its nuclear deterrent as well as its prominent role in its neighborhood,  Hollande's lack of support for the missile shield is more economic, with the French president pointing out the lack of involvement by French companies in the expensive endeavor. Hollande's opposition will not derail the missile shield project, but could certainly complicate several important details, especially the timing.

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A Less Aggressive Strategy for Syria

As relates to the growing crisis in Syria, the new Hollande government is not likely to push as aggressively against Syrian president Assad's regime as other Western leaders might hope, but it will still be supportive of efforts to end the conflict there. As a candidate, Hollande stated he would support France's involvement in a military option against Assad provided it was approved and orchestrated by the United Nations. This is less the bold commitment of French troops as it might appear given that Hollande knows there is almost no likelihood of such a decision being approved by the U.N. Security Council due to the strong opposition by Russia and China. In his final weeks in power, Sarkozy had publicly pushed for quick action by the U.N, a call that his successor will pick up, but with considerably less force and urgency.

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France and Germany at Odds over Fiscal Policy

The issue on which Hollande must speak with greater immediacy is France's role in the EU's efforts to revive its weakening economies. Hollande's win, the first by a French socialist since 1995, has been seen as a rather strong rebuke by the public against increased austerity measures designed to reduce budget deficits in the hopes of restoring economic confidence and performance. Hollande's win, as it relates to austerity, did not stem from a vacuum, but rather from a growing continent-wide weariness and reassessment of the efficacy and wisdom of cutting budgets in a time of high unemployment and low consumer demand. Hollande's relatively pro-stimulus stance is squarely in opposition to that of Germany, whose leader, Angela Merkel, openly supported Sarkozy in his reelection bid in part because of his commitment to implementing economic policies favored by Germany.

In a move that telegraphs at least Hollande's intention to work closely with Germany, even as he pulls away from German-supported austerity measures, Hollande appointed Jean-Marc Ayrault as Prime Minister. Ayrault has close ties with Germany and has met in recent months with German officials to work out a consensus between the two countries regarding economic priorities. Hollande will quite likely find himself at odds with Merkel, but the appointment of Ayrault helps to ensure relations will remain cordial and effective.

Still, there is little doubt as to Hollande's determination to increase government spending to jump start his country's moribund economy. How this influences other EU economies struggling with more severe budget issues remains to be seen, but it is likely that countries such as Greece and Spain will look to the unfolding French model as they contemplate their own maneuvers away from austerity. This, in turn, will have tremendous implications — positive and negative — for near-term financial markets and growth forecasts.

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