Analysis

Sarkozy Fails to Revitalize French Economy

The French president’s economic policies have been unconvincing. His country remains uncompetitive compared to many of its neighbors.

With over 9 percent unemployment and a lingering fiscal crisis, France has far from recovered from the recession that struck Europe two years ago. President Nicolas Sarkozy’s economic policies have been unconvincing in the meantime and could threaten his reelection prospects.

France, which is the second largest economy in the eurozone after Germany and the ninth largest in the world, is struggling to regain growth while both its joblessness figures and its fiscal outlook remain dismal. The International Monetary Fund warned last week that France could miss its 3 percent deficit target for 2013 unless it implemented deeper spending cuts which it also needs to safeguard its coveted AAA credit rating.

Despite a promise to slash almost a hundred billion euros in public spending, Sarkozy’s conservative government has vowed to avoid unpopular increases in income, corporate and value-added tax rates.

Raising the retirement age — despite weeks of trade union protests — has been a step in the right direction but France’s pension system needs far more comprehensive reform in order for it to survive financially into the second half of this century.

Consumer confidence rose slightly last month but remains well below its long-term average. Unemployment is also high compared to neighboring countries like Germany. Meanwhile, the French who do have a job are far less productive than their German counterparts. On top of a 35 hour workweek, French employees enjoy five weeks of legally mandated vacation, besides national holidays, and compensatory time off for working overtime. That should amount to fifty days of paid vacation per year but combined cleverly with “bridges” over workdays that fall between off days, most French actually have a week off nearly every month.

As a result, an hour of work costs $43 on average in France compared with $36 in neighboring European countries. Little wonder that companies are outsourcing to Central and Eastern Europe where labor is not only cheaper but governments are less prone to interfering in their business altogether.

President Sarkozy made some attempts to deregulate the economy but in the wake of the 2008 financial crisis, he appeared to abandoned laissez-faire and complained that nothing had “gone to labor” in the preceding decade when bankers supposedly enriched themselves at the expense of the global economy.

Consequently, tax rates have remained relatively high while the government accounts for more than half of the national economy. The state continues to dominate entire industries including electricity, postal services and railways while the private labor market is burdened with rigid regulations that exacerbate unemployment and undermine France’s competitiveness within the eurozone.

Sarkozy’s sudden embrace of protectionism and appeals to “labor” were hardly surprising given widespread discontent with the lack of economic recovery. But no matter the president’s denouncements of the “freewheeling” financial industry and the “excesses of capitalism,” voters in 2012 may well prefer a genuine leftist over Sarkozy’s poor imitation of one. Both France’s socialists and the leader of its jingoist Front national are currently more popular than the 56 year-old former interior minister.