- The Washington Times - Wednesday, May 9, 2007

France’s unemployment rate hasn’t fallen below 8 percent in a quarter century. During that period, France’s per capita gross domestic product declined from seventh in the world to 17th. In none of the last five years has the French economy grown as fast as the average rate for the 30 industrial economies that comprise the Organization for Economic Cooperation and Development. Its economic growth rate during 2006 was the slowest of any nation in the European Union except Portugal. As a share of labor costs, taxes on the average French worker exceed 50 percent. What little progress France has achieved over the past decade has been financed by raising the nation’s public debt faster than any other country in Western Europe.

As bad as this situation is, 47 percent of the French electorate actually attempted to make it far worse by voting on Sunday for the statist agenda (government-subsidized employment and big hikes in unemployment benefits, the minimum wage, public pensions, disability payments, housing allowances, etc.) of the Socialist presidential candidate. Her policies would have raised public spending well above its current growth-stunting level of nearly 55 percent. Fortunately for France, 53 percent of the electorate voted for Nicolas Sarkozy, the center-right candidate whose economic agenda seeks to change some of the worst features of the French economy. (He wants to change some, but by no means all of them.)

If parliamentary elections in June give him the majority he will need, Mr. Sarkozy will attempt to add some much-needed flexibility to the labor market by reducing payroll and income taxes on labor above France’s legislated 35-hour workweek. (Few people in the world work as little as the French, which largely explains their relative economic deterioration in recent decades.) Mr. Sarkozy also wants to change labor contracts to make it easier to hire and fire workers, but resistance will be fierce. He is determined to reduce the power of striking workers by requiring them to provide minimum levels of services in transportation and elsewhere. He has pledged to reduce both the tax burden (by lowering personal, corporate and inheritance tax rates) and the budget deficit by raising growth and reducing unaffordable pension obligations in the public sector.

On the negative side, Mr. Sarkozy remains an aggressive protectionist. He pledged to raise Paris’s contribution for farm subsidies if the European Union agrees to reduce them during trade negotiations. He wants to impose a carbon tax on imports from nations that have not ratified the Kyoto Protocol. He favors competitive depreciation of the euro in order to increase exports. Over the years, the 52-year-old Mr. Sarkozy has been a big-time interventionist, who, as finance minister, actually instructed supermarkets to reduce the price of breakfast cereal. His latest effort has been to pressure the European Central Bank to change its mandate to include an emphasis on jobs and growth in addition to inflation.

In sum, Mr. Sarkozy offers some hope on France’s domestic economic front (if he can hurdle the huge barriers confronting him). But he remains suspect on international economic policy.

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