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Hold the scandal. Here’s Hollande’s remedy for France’s ailing economy

Brushing aside revelations about his personal life, President François Hollande has unveiled a reform package that includes corporate tax breaks and cuts to public spending.

To the dismay of tabloid editors, French President François Hollande today refused to shed light on allegations that he is having an affair with a movie actress.

But for bureaucrats, economists, and French public, the president had another message to deliver during a marathon press conference. He insisted that the EU’s No. 2 economy – considered by many the biggest economic concern in the union – will be taking a business-friendly path to revive growth and curb stubborn unemployment. His reform package includes ambitious tax reductions for companies and reductions in public spending.

President Hollande spoke in the opulent salon of the Elysee presidential palace, where 500-plus journalists had gathered. “It is imperative that France restores the power of its economy. There is no time to lose. France must rebound to retain its influence in the world and in Europe,” he said.

His reform plans, which took the country by surprise during a New Year’s address, have energized some and shocked others who say the Socialist president is betraying his base. Some have even likened him to Britain’s centrist Tony Blair or Gerhard Schröder, the German left-leaning leader who implemented a radical reform agenda that helped clinch Germany‘s powerhouse position in Europe today.

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In recent days, he has sought to brush aside gossip about his love life and regain the confidence of a public that has written him off as the most unpopular president of the Fifth Republic. However, to implement his reform agenda will require overcoming public opposition, hardly a recipe for popularity. 

“There is a change of spirit, a change of political line that is much more pro-business,” says Alexandre Kateb, founder of the consulting firm Competence Finance and a professor of economics at SciencesPo in Paris. “But people are not as ready in France to make the sacrifices that were made in Germany.”

Hollande laid out details on Tuesday of a so-called “responsibility pact,” which will reduce the tax burden on companies in exchange for increasing hiring, especially of the young and old. Specifically Hollande said he will remove the obligatory family welfare contributions made to companies, by 2017. That will save companies an estimated $41.02 billion in labor costs.

He also promised to reduce public spending by $68 billion by 2017. “Cutting spending is the necessary path to cutting deficits and it is a condition for any tax cuts,” Hollande said.

Public spending accounts for 57 percent of France’s GDP, far too high many economists say. The pledge on lowering public spending comes after Hollande relied heavily on tax increases during his first 18 months in office, which led to protests, some violent, in various pockets of the country.

A perceived inability to steer the economy, saddled with unemployment around highs of 11 percent, has been the main reason behind Hollande’s low approval ratings. 

Today the president insisted his move is not a “U-turn,” but that it’s a question of moving “faster, further, and deeper.” “When you turn you have to slow down, or else it’s dangerous. It’s a question of accelerating, not turning around,” Hollande said.

Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, says France is “the main economic problem in Europe” and says he considers the announcement today the “right path.”

However, despite the derision from the French left, Hollande is actually a “reluctant reformer,” Mr. Kirkegaard says. “He is not Gerhard Schröder, he is not a natural structural reformer,” he says.

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And it’s unclear how the package will be implemented. While some economists were calling for more dramatic spending cuts, a more pressing question is which parts of the government budget are on the chopping board. 

“It will restore a little bit of confidence in where France is going, but we need to see things happening,” says Guillaume Xavier-Bender of the German Marshall Fund of the US in Brussels.