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2012-04-05 07:17:04
By ignoring their country s economic problems, France s politicians are making
it far harder to tackle them
Mar 31st 2012 | from the print edition
VISIT the euro zone and you will be invigorated by gusts of reform. The Save
Italy plan has done enough for Mario Monti, the prime minister, to declare,
however prematurely, that the euro crisis is nearly over. In Spain Mariano
Rajoy s government has tackled the job market and is about to unveil a tight
budget (see article). For all their troubles, Greeks know that the
free-spending and tax-dodging are over. But one country has yet to face up to
its changed circumstances.
France is entering the final three weeks of its presidential campaign. The
ranking of the first round, on April 22nd, remains highly uncertain, but the
polls back Fran ois Hollande, the Socialist challenger, to win a second-round
victory. Indeed, in elections since the euro crisis broke, almost all
governments in the euro zone have been tossed out by voters. But Nicolas
Sarkozy, the Gaullist president, has been clawing back ground. The recent
terrorist atrocity in Toulouse has put new emphasis on security and Islamism,
issues that tend to favour the right or, in the shape of Marine Le Pen, the far
right.
Yet what is most striking about the French election is how little anybody is
saying about the country s dire economic straits (see article). The candidates
dish out at least as many promises to spend more as to spend less. Nobody has a
serious agenda for reducing France s eye-watering taxes. Mr Sarkozy, who in
2007 promised reform with talk of a rupture, now offers voters protectionism,
attacks on French tax exiles, threats to quit Europe s passport-free Schengen
zone and (at least before Toulouse) talk of the evils of immigration and halal
meat. Mr Hollande promises to expand the state, creating 60,000 teaching posts,
partially roll back Mr Sarkozy s rise in the pension age from 60 to 62, and
squeeze the rich (whom he once cheerfully said he did not like), with a 75% top
income-tax rate.
A plethora of problems
France s defenders point out that the country is hardly one of the euro zone s
Mediterranean basket cases. Unlike those economies, it should avoid recession
this year. Although one ratings agency has stripped France of its AAA status,
its borrowing costs remain far below Italy s and Spain s (though the spread
above Germany s has risen). France has enviable economic strengths: an educated
and productive workforce, more big firms in the global Fortune 500 than any
other European country, and strength in services and high-end manufacturing.
However, the fundamentals are much grimmer. France has not balanced its books
since 1974. Public debt stands at 90% of GDP and rising. Public spending, at
56% of GDP, gobbles up a bigger chunk of output than in any other euro-zone
country more even than in Sweden. The banks are undercapitalised. Unemployment
is higher than at any time since the late 1990s and has not fallen below 7% in
nearly 30 years, creating chronic joblessness in the crime-ridden banlieues
that ring France s big cities. Exports are stagnating while they roar ahead in
Germany. France now has the euro zone s largest current-account deficit in
nominal terms. Perhaps France could live on credit before the financial crisis,
when borrowing was easy. Not any more. Indeed, a sluggish and unreformed France
might even find itself at the centre of the next euro crisis.
Browse our slideshow guide to the leading candidates for the French presidency
It is not unusual for politicians to avoid some ugly truths during elections;
but it is unusual, in recent times in Europe, to ignore them as completely as
French politicians are doing. In Britain, Ireland, Portugal and Spain voters
have plumped for parties that promised painful realism. Part of the problem is
that French voters are notorious for their belief in the state s benevolence
and the market s heartless cruelty. Almost uniquely among developed countries,
French voters tend to see globalisation as a blind threat rather than a source
of prosperity. With the far left and the far right preaching protectionism, any
candidate will feel he must shore up his base.
Many business leaders cling to the hope that a certain worldly realism will
emerge. The debate will tack back to the centre when Mr Sarkozy and Mr Hollande
square off in the second round; and once elected, the new president will ditch
his extravagant promises and pursue a sensible agenda of reform, like other
European governments. But is that really possible? It would be hard for Mr
Sarkozy suddenly to propose deep public-spending cuts, given all the things he
has said. It would be harder still for Mr Hollande to drop his 75% tax rate.
1981 and all that
Besides, there is a more worrying possibility than insincerity. The candidates
may actually mean what they say. And with Mr Hollande, who after all is still
the most likely victor, that could have dramatic consequences.
The last time an untried Socialist candidate became president was in 1981. As a
prot g of Fran ois Mitterrand, Mr Hollande will remember how things turned out
for his mentor. Having nationalised swathes of industry and subjected the
country to two devaluations and months of punishment by the markets, Mitterrand
was forced into reverse.
Mr Hollande s defenders say he is a pragmatist with a more moderate programme
than Mitterrand s. His pension-age rollback applies only to a small set of
workers; his 75% tax rate affects a tiny minority. Yet such policies indicate
hostility to entrepreneurship and wealth creation and reflect the French
Socialist Party s failure to recognise that the world has changed since 1981,
when capital controls were in place, the European single market was incomplete,
young workers were less mobile and there was no single currency. Nor were
France s European rivals pursuing big reforms with today s vigour.
If Mr Hollande wins in May (and his party wins again at legislative elections
in June), he may find he has weeks, not years, before investors start to flee
France s bond market. The numbers of well-off and young French people who hop
across to Britain (and its 45% top income tax) could quickly increase.
Even if Mr Sarkozy is re-elected, the risks will not disappear. He may not
propose anything as daft as a 75% tax, but neither is he offering the radical
reforms or the structural downsizing of spending that France needs. France s
picnickers are about to be swamped by harsh reality, no matter who is
president.
from the print edition | Leaders