When you think of the economic dogs of Europe, the first countries that come to mind are Greece, Italy, Spain and Cyprus. But France, the region’s second largest economy after Germany, has some fleas of its own.

France has been struggling for years now to bring its budget deficit under control under a European Union (EU) mandate, having already gotten a two-year extension from the EU to meet its goal amid slow economic growth and record high unemployment. But the EU has refused to grant the French another reprieve because the country’s public debt-to-GDP ratio is expected to a hit a new record of 95.6 percent this year.

After important municipal elections concluded in March, President Francois Hollande reshuffled his government, promoting Manuel Valls from interior secretary to the prime minister’s office with marching orders to bring the country’s economy up to European snuff. But while France is keen to meet EU budget targets, it doesn’t want to sacrifice growth in the process.

In one of his first speeches as prime minister, Valls promised significant tax cuts for French businesses. To help encourage hiring, he pledged to cut labor costs by EUR30 billion under a plan that will relieve employers of paying social security contributions for workers earning minimum wage and lower contributions for those who make slightly more beginning in 2016. The social security contributions of workers themselves will also be cut next year in a bid to boost take-home pay and spending.

But those tax cuts are just the sugar, meant to help the real medicine go down.

In addition to tax cuts, Valls also proposed a raft of spending cuts amounting to about EUR50 billion by 2017. About EUR18 billion will be cut from state spending, primarily by improving efficiency. One element of that plan is cutting the number of France’s administrative regions from 27 to around 14 within three years. It will also maintain the freeze in the pay of government workers.

Local spending will also get the axe, shaving off EUR11 billion largely through lower payments to local councils. Health care spending will be slashed by EUR10 billion through the increased utilization of generic drugs and by reducing the number of operations and the length of hospital stays paid for by the national health care system.

Most controversially of all, Valls has proposed a EUR11 billion cut to social security, long seen as a sacred cow of the French Socialist Party and the left. The cuts would come primarily by temporarily freezing welfare and pension payments.

So far, Valls has managed to gain tentative acceptance of the plan, winning a confidence vote with 306 votes versus 239 votes in April after outlining his plan. The budget proposal itself was approved by an even narrower margin on April 29, with 265 votes for and 232 against. But it’s not a done deal yet and still requires approval by Brussels.

Many in Brussels, and France itself, are skeptical of the plan.

Using EUR50 billion in spending cuts to help finance EUR30 billion in tax cuts leaves the government no margin for error. Given the change in tack, France has already had to adjust its deficit forecast for this year from 3.6 percent to 3.8 percent, after totally missing its target for 2013. For next year, it was increased from its original 2.8 percent to 3 percent, which will still be within the EU’s mandated reduction but much less ambitious.

Most of the tax cuts are also frontloaded, while most of the spending reductions kick in later down the road. Given that timing, if the French economy fails to achieve its 1 percent growth forecast this year or comes up shy of 1.7 percent in 2015 or 2.25 percent in 2016, the reduction plan could easily miss its target.

Despite that risk, Brussels is expected to approve the plan. After delaying deficit reduction efforts since 2007, it appears that the European Commission is simply happy that France is taking any action at all.

Overall, the biggest risk at this point seems political. Given the narrow approval of the budget plan and the clear ambivalence of most members of the Socialist Party, even if the deficit target is hit, a lack of economic growth would be a political death knell for President Hollande.

While Valls is enjoying better than 70 percent approval ratings thanks to his “honeymoon” period, recent polls show Hollande’s approval rating at just 17 percent. The so-called Eurosceptics, those who see dangers lurking in the loss of sovereignty that underlies greater European integration, also made inroads in the country’s municipal elections. If the plan goes awry, the Socialists could easily lose their grip on the government.

So far, the market doesn’t seem too terribly concerned about the budget proposal. After taking a dip in mid-April, iShares MSCI France Index (NYSE: EWQ) gained steam in the back half and finished the month up by slightly more than 2 percent. The broader Vanguard FTSE Europe ETF (NYSE: VGK), with a nearly 15 percent allocation to France, also finished the month up by nearly 3 percent as the French budget was largely shrugged off on the news that the European Central Bank is entertaining the notion of taking stimulus measures.

Barring some catastrophic miss of its deficit targets, the proposed French austerity program appears to pose little risk for Europe’s bull run, though President Hollande may rue the day he caved in to Brussels.

Portfolio Updates

If the French deficit reduction program and its associated tax cuts go to plan and help boost consumer spending, that would be good news for Unilever (NYSE: UN). While the company’s first quarter sales grew by 6.6 percent in the emerging markets, developed markets and Europe are particularly challenged, falling 0.3 percent and bringing overall sales growth to just 3.6 percent on a currency adjusted basis.

Revenue totaled EUR11.4 billion (USD15.75 billion) in the first quarter, down 6.3 percent from EUR12.6 billion in the same period last year. That was largely due to currency fluctuations as underlying volume grew 1.9 percent while pricing was up 1.6 percent. Another positive was the 6 percent boost to the company’s dividend to EUR0.29 per share.

Going forward, management expects positive growth for the year on the assumption that the European economic situation will continue to improve. It also believes that, despite currency fluctuations, emerging markets will continue to make a positive growth contribution, particularly as the company plans to continue pushing price increases through.

Unilever remains a buy up to 46.