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France: Is the honeymoon already over for new PM?

Less than a month after his appointment as France's Prime Minister, and Manuel Valls could face a revolt – from his own party.

When he was appointed on March 31, analysts saw President Francois Hollande's decision to name Valls as his number two as a gamble. Seen as the most right-wing of the left-wing Socialist party, Valls's strong stance on security issues was a hit with the electorate but less so with his own party.

The environmental party, Les Verts, pulled out of a key alliance with the Socialists as a result of the appointment. It also alienated the left of the Socialist Party, which made its displeasure known by abstaining from voting in a confidence vote.

Now, his leadership could be called into question again. On April 16, Valls unveiled new fiscal measures aimed at boosting the country's economy and tackling its deficit. But getting Parliament's approval might be harder than expected.

If he fails to convince the French Parliament of the economic necessities of his measure, he risks losing credibility at home and – more importantly – on the international stage.

Eric Feferberg | AFP | Getty Images

The fiscal measures

Two weeks ago, Manuel Valls unveiled a plan to save 50 billion euros ($69.3 billion) between 2015 and 2017 in order to reach the country's deficit target of 3 percent by 2017 and fund the government's flagship reform: the Responsibility and Solidarity Pact.

The plan involves freezes -- not cuts -- in public sector salaries and welfare benefits. But these measures would be temporary and last until October 2015 only.

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While the plan also touches upon the sacrosanct French health system with a 10 billion euros cuts, Valls was quick to reassure, saying it would not affect either the cost of health care or its quality.

"France is to be congratulated", Nicholas Spiro, managing director at Spiro Sovereign Strategy told CNBC by phone, as for the first-time, France has revealed a fiscal consolidation plan that is not tax-based.


However, barely had the plan been revealed, than several alternatives were drafted by socialist MPs. One of the plans, backed by eleven socialist deputies called Valls's measures "economically dangerous" and proposed only 35 billion euros ($48.5 billion) in cuts.

Another proposal recommended the implementation of the Responsibility Pact be delayed for one year for big groups and corporations. "French people's spending power has already been hit by budgetary effort, we cannot ask more from them," Karine Berger, who proposed the measure, explained on Monday 21.

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Other socialists MPs announced that they would simply not vote. In a letter published in the left-wing Liberation daily newspaper on April 25, three lawmakers wrote "where is the justice when, to finance the cut in corporate tax, we consider to lower pensions, family and housing benefits, or public servants wages, even the more modest ones?"

What's at stake for Valls?

Already, the new prime Minister has sought to placate some critics and has offered some lee-way. On Monday, he announced that pensions of below 1,200 euros per month ($1,663) would not be impacted by the freeze.

For Nicholas Spiro, "it's imperative that [Valls] wins this vote" as losing would not bode well for his premiership. But it would also jeopardize his relations with Brussels.

Tuesday's vote is only consultative and win or lose, the text will then be sent to Brussels for the European Commission to review. Nonetheless, losing, explains Spiro, would make it more difficult to convince European authorities that France can reach its economic imperatives.

"This is a very important moment for French fiscal policy and for the credibility of French economic policy", concludes Spiro.

The risk for Antonio Barroso, senior vice president at political risk consultancy Teneo Intelligence is that "the premier fails to convince rebel deputies and subsequently loses a majority to pass legislation in Parliament." Already weakened by local elections, the Socialist Party is gearing up for another political setback during the May's European Elections and "getting the necessary support from the socialists will become especially hard."

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