Magazine article Business Credit

Hot Spots: France

Magazine article Business Credit

Hot Spots: France

Article excerpt

After President Nicolas Sarkozy moved into the Élysée Palace last year, he lost no time trying to put a slew of his reform ideas into practice. With this, he gained the admiration of the International Monetary Fund, which praised his supply-side approach as the best and most durable way of increasing consumer purchasing power and stimulating the economy. But he also generated a lot of public resistance, setting off numerous strikes and demonstrations by special interest groups (such as public workers at hospitals, schools, the mail service and some of his own ministries) feeling that they were being unfairly singled out to carry a disproportionate share of the necessary sacrifices.

Taxi drivers have protested his plan to increase their numbers. The European Union has criticized his proposed delay in cutting the budget deficit, saving that his government not only asked for a couple more years to balance the household plan, but also used economic growth projections that are highly unrealistic. Loyalists in the town where he was mayor have refused to support his handpicked candidate for the job, and there have been signs of mounting criticism from within his own UMP party.

Many UMP members fear that they will be in for a pounding in the upcoming March 9th and 16th elections in 36,781 municipalities because this balloting could turn into a protest vote against the president. So concerned are some of the candidates that they have gone to extremes, removing the party's logo from their fliers and discouraging campaign visits by Mr. Sarkozy. The reason is that his popularity ratings have plummeted to just 39% from 67% after his election last May. The main forces have been a deteriorating economy that has made people feel that their purchasing power is being eroded, a nagging suspicion that the president is less serious about fulfilling his campaign promises than many had hoped and the perception that Mr. Sarkozy is too busy looking after his personal affairs (particularly his divorce and subsequent marriage to the Italian super-model and singer Caria Bruni) to attend to what ails them.

To his credit, Mr. Sarkozy did manage to get unions and employer groups to agree on a compromise to loosen firing rules in exchange for more unemployment and training benefits. He also pushed through the elimination of income taxes on overtime hours as a way of getting around the limitations of the 35-hour week, and he introduced a tax deduction for mortgage interest payments. For France, these achievements are quite remarkable, especially the historic deal between the five largest labor unions and the three main employer federations.

Many of the successes the president has had have come at a price, though. To placate fishermen blockading a port last December to protest rising fuel prices, he promised to give them some $450 million in subsidies. To persuade striking transport workers to surrender pension privileges he had to offer them pay hikes and bigger retirement packages. To placate students angered by a law giving college presidents more authority, he sold a $5 billion stake in Electricité de France to raise funds with which to renovate universities.

Now, an independent commission chaired by the noted economist and former Socialist government adviser Jacques Attali has come out with a report proposing more than 300 measures to reform public administration, reduce non-wage labor costs and deregulate retailing and other services in order to boost the French economy's (currently weak) trend growth by half in five years and reduce unemployment from 8% to 5%. …

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