Hollande's government will have four major challenges in the remainder of 2012. The first is reducing labor costs and creating jobs. An April report by Eurostat revealed that the average hourly labor cost in France is 34.2 euros (about $44.37), above the eurozone average of 27.6 euros. Most important, the hourly labor cost in France is above the cost in Germany (30.1 euros). The report also revealed that labor costs are growing at a faster pace in France than Germany.

At the same time, unemployment is rising in France. In August, unemployment reached 10.2 percent of the active population, the highest level in 13 years. According to the French National Statistics Office, the French economy will grow by 0.2 percent this year. Shrinking economic activity in Europe and a contracting market at home are hurting French companies, with key sectors such as the car making industry and retail being particularly affected.

Like Spain and Italy did earlier this year, France is considering labor reform as a solution to its high labor costs and increasing unemployment. The reform measures would attempt to reduce the costs of dismissing workers and simplify the procedures for hiring new employees. Like Madrid and Rome before, Paris will face opposition from some of the labor unions on these measures.

France's largest union, the French Democratic Confederation of Labor, is willing to negotiate on the reforms. Other unions, such as the left-leaning General Confederation of Labor and the Workers' Force, have a tougher stance on the issue. In early September, the French government began formal consultations with unions and employers, trying to find common ground for a labor reform. If the parties cannot reach an agreement by late December, Paris will launch its own proposal. The debate over labor reform is likely to be a key issue in France during 2013 and will probably generate strikes and protests across the country.

France's second challenge will be reducing its deficit. The French government expects a deficit of 4.5 percent of gross domestic product this year, and it plans to lower it to 3 percent next year, in line with EU targets. On Sept. 28, the Elysee presented a budget for 2013 that includes 30 billion euros in spending cuts and tax increases. France also supported the fiscal compact treaty, a tool designed by Germany to limit the deficits of eurozone members.

Both measures are highly controversial. On Sept. 30, some 40,000 demonstrators from left-wing parties and organizations took to the streets of Paris to protest the fiscal compact. On Oct. 4, French Finance Minister Pierre Moscovici admitted that Paris is considering the modification of some of the taxes included in the new budget, because some owners of small businesses believe the taxes will hurt French entrepreneurs. Small- and medium-sized companies are particularly critical of a proposed increase in marginal capital gains tax rates to as high as 60 percent (the current rate is 32 percent).

Disparate Domestic Needs

In this context, the third challenge facing Hollande's government will be dealing with the increasing (and contradicting) pressure from different sectors of the country. The industrial and business sectors believe Hollande's plans to increase the tax contribution of the rich are damaging the business environment in France. Leftists, meanwhile, claim that Hollande is breaking his campaign promises, including a pledge not to apply austerity measures if elected.

The latter criticism is also heard within the coalition government. The Greens (the junior partner in the French government) and the leftist factions of the Socialist Party are displeased with the government's support of the fiscal compact treaty — a document that German Chancellor Angela Merkel and then-French President Nicolas Sarkozy agreed upon in 2011 and that Hollande criticized during the presidential campaign.

Hollande's government has been in power for less than six months and has political room to overcome these internal frictions, but the president and the prime minister will be forced to seek consensus to avoid a rupture with some factions within the parliament. This could slow the reform process that Hollande will seek in 2013.

France's Foreign Challenges

Finally, during the EU summits in October and December, France will have to defend its position on crucial issues such as the banking union, the financial transaction tax and the European Union's 2014-2020 budget. Recently, Paris and Berlin approached similar positions on the first two issues, suggesting that Hollande and Merkel are willing to preserve the European Union's Franco-German political leadership.

However, France and Germany are likely to disagree on the EU budget. Berlin wants to cut the budget and has support from countries such as the United Kingdom, Finland and Sweden. Paris fears that this could reduce European aid to its agricultural sector, because France is the main beneficiary of the union's Common Agricultural Policy. In this regard, Paris may choose to side with Central and Eastern European countries, which are pledging to avoid spending cuts at the EU level. France will therefore have to find a balance between its national interests and the need to achieve consensus with Germany.

France and Germany support a treaty reform in the European Union, but they differ in some aspects of their long-term view of the European Union. Hollande suggested that the union should create some mechanism of debt mutualization for eurozone countries, which Germany opposes. On Sept. 27, French Europe Minister Bernard Cazeneuve stated that a new EU treaty should increase solidarity or create "more efficiency in the mechanisms of mutualizing debt." While no decision on this issue will be made in the short term, it will be a subject of friction between France and Germany in the upcoming European summits. Dissent between Berlin and Paris on some key issues will slow down the decision-making process in the European Union.

The European crisis has reached a point where governments are under pressure from actors at the domestic, international and supranational level with contradictory interests. Domestically, Hollande has discovered that his campaign promises (to create growth and avoid cutting spending) are difficult to meet and is being pressured by both the conservative and the progressive sectors of the country. Internationally, Paris' strategic priority of maintaining a good relationship with Germany is colliding with its need to protect its domestic economy.

France has not yet felt the impact of the crisis with the same intensity as its southern neighbors. As the crisis becomes more intense in France, the contradicting pressures on Hollande will increase.