You're reading: Key political risks to watch in France

PARIS, July 2 - With the agreement of euro zone leaders to shore up ailing banks and bring down borrowing costs, French President Francois Hollande scored a minor victory in his quest for a more flexible approach to the euro crisis.

But at home, his post-election honeymoon is over just six
weeks into his term as he prepares for what will be tense talks
with unions on the topic of labour reforms amid deepening
economic malaise and fear of austerity.

Hollande overcame the first major hurdle of his presidency
in June by securing an absolute majority in parliament, leaving
him free to push ahead with his economic policies without
needing the support of the hard left, which opposes austerity.

His government is poised to present tweaks to its 2012
budget law next week to reflect disappointing growth, and
concerns are growing that Hollande may use this to introduce
cuts in public services and unpopular labour reforms.

He has already drawn criticism over a cosmetic 2 percent
rise in the minimum wage that barely covers inflation, and a
recent opinion poll showed his approval rating waning to one of
the lowest levels ever for a new president.

The scandal over his partner Valerie Trierweiler’s support
for the political rival of his former partner, Segolene Royal,
has also done nothing to buoy his popularity.

For the man who took power in May promising a “normal”
presidency, and who criticised predecessor Nicolas Sarkozy for
putting his private life in the limelight, the blurring of
personal and political intrigue has been particularly damaging.

ECONOMY

Hollande has inherited a fragile economy with stagnant
growth and unemployment at its highest level in nearly 13 years.

With an in-depth audit of public finances due next week, the
public are bracing for possible austerity measures to keep to
budget deficit targets, despite Hollande’s repeated campaign
assurances that he would protect the lower and middle classes.

Financial markets are watching closely for any signs of
slippage on the budget gap, and the European Commission has
warned France could miss next year’s goal of 3 percent of GDP.

While Hollande won May’s election promising austerity was
not the only way to resolve the debt crisis, Prime Minister
Jean-Marc Ayrault recently announced public sector staff would
be cut at a faster pace than previously expected in many
ministries.

The government has is also set to unveil new tax rises in an
amended budget bill next week in an effort to find an extra 7.5
billion euros of savings it needs this year.

WHAT TO WATCH:

– Results of the public finance audit

– Additional austerity measures in the budget bill

EURO ZONE

Under pressure to prevent a breakup of the single currency,
euro zone leaders agreed last week to let their rescue fund
inject aid directly into stricken banks from 2013 and intervene
on bond markets to support troubled member states.

French Socialists were quick to claim the deal as a victory
for Hollande, who has lobbied for bold short-term steps to stem
the crisis, in the face of reticence from German Chancellor
Angela Merkel.

But despite the concessions by Berlin, questions remain
about the conditions, size and supervision of any future aid for
Spain and Italy.

Hollande still faces an uphill struggle to convince Merkel
on the idea of joint euro zone bonds after she reiterated her
opposition at the summit, calling for greater budgetary
integration before shared debt can be envisaged.

Euro zone finance ministers are set to meet on July 9 and 10
to discuss the modifications to the euro zone rescue funds, and
France is likely to use the opportunity to keep up the pressure
in the hope of a compromise with Berlin.

WHAT TO WATCH

– Any signs of compromise on the issue of shared debt

– Any surge in French bond yields from record lows

FOREIGN POLICY

Hollande delineated his foreign policy differences with
Sarkozy days into his presidency when he defied partners at
Group of Eight and NATO meetings by announcing he would withdraw
French troops early from Afghanistan.

As the Syria crisis escalates, Hollande is under pressure to
show the same decisiveness and leadership that Sarkozy did in
the Libyan crisis last year.

The 16-month-old Syrian conflict has taken on an urgent
international dimension after the shooting down last month of a
Turkish fighter jet by President Bashar al-Assad’s forces.

A meeting of the Friends of Syria grouping is to be held in
Paris on July 6. The French government has also invited Syrian
opposition groups in an attempt to put more pressure on Assad,
as well as Russia and China, which continue to oppose any
removal of Assad.

The event in Paris will be the first time Hollande has taken
centre stage on the Syrian issue and he will be under pressure
to show strength. But it is unlikely the event will do anything
to break the deadlock that continues to claim civilian victims.

WHAT TO WATCH:

– Outcome of the upcoming Friends of Syria meeting