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France's Economic Battle Royale

Author: Lee Hudson Teslik
Updated: November 14, 2007

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For Nicolas Sarkozy, the honeymoon is over. The new French president gained popular support for an ambitious program of economic reforms during his campaign, but to turn his platform into policy he must now face down French unions, angry at the prospect of losing worker benefits they had come to see as an entitlement. Following one-day October strikes that shut down France’s railroads, the country’s unions launched sweeping November 13 public sector walkouts (France24). Their aim remains to derail Sarkozy’s momentum as he works to launch a program of broad economic change.

The strikes come at a tense moment for the French economy. Global market jitters have weakened a strong run of European growth, and Sarkozy recently complained that a declining dollar is undermining French exports (Bloomberg). Still, a majority of the French people say they support Sarkozy, but the question remains whether a new wave of strikes will trip up his rush for reform, or come as a mere blip in a broader, liberalizing time.

Sarkozy’s plans are simple enough. He wants France to work more, and he wants to revamp the country’s business laws to make Paris a friendlier venue for finance. Laying out his economic goals this summer, Sarkozy said France needs to play “the game of globalization” (NYT) and said he was willing to upset France’s welfare and labor protection systems if it helped French businesses compete in a world marketplace. Speaking recently at CFR, France’s Finance Minister Christine Lagarde expounded on Sarkozy’s plans. Lagarde said she and Sarkozy are working at “reforming the country as fast and as much as we can, while not upsetting too much the social balance that has been crippling France.”

In terms of specifics, Sarkozy provides a long list. He wants to put an end to France’s thirty-five hour work week, allow more shops to open on Sundays, chop down French bureaucracy, slash taxes, promote business research through tax breaks, and encourage small business growth through American-style business policies (Economist). He wants to build Paris to rival London as a financial hub and proposes reducing state regulation of equity and currency exchanges, as well as rules to allow foreign firms to report their financials only in English (IHT). As a first step, he took on France’s pension system, and specifically some of the nation’s most powerful unions, seeking to trim the robust retirement benefits France provides its public transport workers.

The transport workers balked. The pension reform plan sparked the most recent round of strikes, with seven of the country’s eight biggest unions calling for action against Sarkozy (AFP). Recent polls from Angus Reid show dampened support for Sarkozy, with the percent of the French population “satisfied” with his performance dropping ten percent since August—though his approval rating remains above 50 percent.

Completely beside the domestic discontent he faces, global economic concerns could also jam up Sarkozy’s reform plans. The International Herald Tribune recently reported that a faltering global economy stands ready to undermine Sarkozy’s economic agenda. The financier Henry R. Kravis, who moderated Lagarde’s discussion at CFR, questioned whether the French people would remain committed to reform: “If we get into an economic slowdown [and] things get tougher for them, it’s easy to start backtracking,” he said. Lagarde, in response, did not minimize the difficulties of the project France had undertaken, but expressed cautious optimism: “When you have a very solid and steady growth, it’s easier to implement the reforms,” she said. She reiterated, however, that Sarkozy was upfront about his economic goals during his campaign, and that many French people say they elected him because of these plans, not in spite of them.

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