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Hollande avoids personal life as he unveils reforms

Hollande's 'pro-business' stance
Hollande's 'pro-business' stance

French President Francois Hollande made little mention of personal matters during his press conference on Tuesday, preferring to concentrate on plans for the economy, despite the controversy surrounding his private life.

"There is no time to lose," Hollande, said after re-introducing his flagship measure to tackle France's crippling unemployment and rising social unrest. The so-called Responsibility pact, which Hollande first mentioned during his televised New Year's address, is aimed primarily at lowering labor costs — which French businesses are quick to point out remain among the highest in the developed world.

"The time has come for France to resolve its main problem, its productivity," Hollande stated on Tuesday, before outlining the other aims of the Responsibility Pact. These were modernizing the corporate tax system and reducing the administrative burden on companies. In exchange, companies were called on to improve working conditions and help boost youth employment.

Hollande also touched on the large deficit looming over the country's finances. He reiterated his pledge to make spending cuts of 15 billion euros ($20.5 billion) in 2014, followed by an additional 50 billion euros of cuts between 2015 and 2017 — a feat, he said, that had never been achieved before in France.

(Read more: Euro zone manufacturing grows; France stumbles on)

He insisted though that the prospective Responsibility Pact and deficit decline would come from structural reforms, rather than "blind budgetary cuts". He said "excesses and abuses" of the welfare system should be curbed, and that a reform of local authorities would follow.

However, despite Hollande's focus on the economy and the welfare system, queries about his private life could not be silenced. This follows controversy over his alleged affair with a French actress, which was exacerbated when his long-term partner, Valerie Trierweiler, was hospitalized for exhaustion and blood-pressure problems.

"Is Valerie Trierweiler still France's First Lady?" bluntly asked Alain Barluet, a journalist for the French daily newspaper Le Figaro.

Hollande replied: "I understand your question and I am certain that you will understand my answer. Everyone can, in their private life, go through ordeals; it's our case."

"These are painful moments, but I have one principle, and it's that private affairs should be treated in private," he continued, promising to reveal the truth to French people before his state visit to Washington DC in February.

Alain Jocard | AFP | Getty Images

France's continued struggle

Despite the slew of positive data the euro zone has enjoyed in the past few months, the French economy remains depressed. French manufacturing output, for instance, contracted once again in December, when its manufacturing PMI (Purchasing Managers' Index) slipped to a seven-month low of 47.0. Meanwhile, manufacturing output in the majority of euro zone — Spain and Italy included — expanded. Even Greece fared better than France, with a 49.6 reading.

Furthermore, unemployment continues to hover around record levels of 11 percent and growth expectations remain subdued, with some analysts even fearing the country returned to recession in the fourth quarter of 2013.

In order to haul itself out of its economic doldrums, France needs deep structural reforms a piece of advice that analysts have reiterated for months, and that appears to have reached the ears of the president.

Indeed, Hollande surprised some in his televised New Year's address by advocating the Responsibility Pact, in which labor costs would be reduced in exchange for job creation. He admitted taxes had "become too heavy" and pledged to reduce public spending, alluding to possible cuts to the sacrosanct social welfare system, a first for a socialist president.

(Read more: Blow for Hollande as French jobs deadline looms)

So many were waiting for his press conference, the third of the kind since his elections in May 2012, with bated breath, hoping for more direction on the form reforms might take.

"We know exactly what he is going to say," Nicholas Spiro, managing director at Spiro Sovereign Strategy, told CNBC on the phone on Monday. "He is going to sound tough and will present a compelling diagnosis of France's fiscal and structural economic problems."

But Spiro's expectations for Hollande to walk the talk were low.

"At the end of the day, there is an inescapable feeling that France does not have the political appetite to reform. It's dithering and is politically paralysed," Spiro concluded.

His analysis was echoed by James Howat, an economist at independent research firm Capital Economics. Howat applauded policymakers slow shift from tax hikes to spending cuts, but added: "There is still a lot of opposition to the more structural reforms that France needs, and Hollande doesn't have the political capital to push through these painful reforms at the moment."

Will France finally start reforming in 2014?
Will France finally start reforming in 2014?

Within the next few months, the country will go to the polls twice: in March for municipal elections and in May for European Parliamentary elections. Howat warned that because of this busy political agenda, "There is a danger, in the first half of the year at least, of more slippage in France's (already fairly tame) reform efforts."

(Read more: Euro zone manufacturing grows; France stumbles on)

Dominique Barbet, economist at BNP Paribas, said it was hard to know if 2014 would see reforms, given, "The government has no guaranty of survival beyond the end of May". Barbet also raised the possibility of a government reshuffle, "which does not facilitate the implementation of an economic policy".

Spiro forecast Hollande would implement some reforms in 2014, but that they would be inefficient. Describing Francois Hollande as a "consensus-builder", he expected the government to "try and strike a compromise" and take "incremental steps which are wilfully inadequate".

What France needs to truly reform, argued Spiro was, "A good old-fashioned bond market rout" -- citing the country's favorable funding conditions throughout the crisis as one of the reasons successive French governments had failed to reform. For Spiro said reforms should have been implemented prior to Hollande's presidency, and nothing short of a "bond market collapse" would now provide the trigger needed.

"France's economy will be lucky to grow this year," he concluded, and its recovery "Will be a classic muddle-though scenario".

Barbet offered a more nuanced opinion, saying that although the reform of 2013 were insufficient, they "went in the right direction". He cited the "Responsibility Pact" that encouraged businesses to hire again by slashing labor costs.

Barbet forecast that businesses would start to invest more in the third quarter of 2014, as the effect of a tax credit introduced in 2013 started to be felt. And while unemployment could trudge higher, 2014 growth could climb to 0.7 percent, he added.

Opinion polls — usually unfavorable to Hollande — are positive on the Responsibility Pact. A survey published by financial daily newspaper Les Echos on January 9 showed that seven-out-of-10 French people thought the "Responsibility Pact" represented a good way to fight unemployment.

According to Barbet, even a potential government reshuffle would not change Hollande's new reformist stance. "When it comes to the economy, there is no choice… There are no alternatives but to continue," said Barbet.

(Read more: French first lady in hospital after reports of Hollande affair)

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