In a television interview on Sunday, President Nicolas Sarkozy frankly admitted that his country lagged behind neighboring Germany and urged Frenchmen to accept austerity to revive growth.
The embattled French leader, who is up for reelection in April, pointed out that social taxes on salaries in his country were “double” those across the border; that the Germans had three times as many youngsters in apprenticeships; and that France lost half a million manufacturing jobs in the last decade when German employment grew.
“The German economy chose to prioritize jobs, jobs, jobs,” he said. “If it worked for them,” he added, “why wouldn’t it work for us?”
The president specifically proposed a “convergence” of tax rates between Europe’s two largest economies which would force the French to rein in their oppressive tax regime. If reelected, Sarkozy vowed to abolish €13 billion worth of social charges currently paid by employers in favor of an increased value-added tax rate.
Sarkozy’s party, currently in government, hiked taxes last August and again in November in an attempt to balance the budget. Consumption taxes on liquors, tobacco and soft drinks were raised as was the lowest value-added tax bracket from 5.5 to 7 percent. The top corporate tax is still 34.4 percent compared to 15.8 percent in Germany. Total tax revenue as a percentage of economic output was 44.6 percent in 2010. In Germany, it was 39 percent.
Germany also does better in terms of employment. The French jobless rate is near 10 percent compared to 6 percent in Germany. Sarkozy said on Sunday he wanted to enable companies to negotiate extraordinary working hours with personnel in imitation of the German Kurzarbeit model which has been successfully replicated in Austria and the Netherlands as well.
Under this program, businesses are able to avoid laying workers off by reducing their working hours. Government subsidies make up for the loss in income while workers are required or encouraged to enroll in training programs to improve their skills and productivity.
According to data from the Organization for Economic Cooperation and Development, the program in Germany saved half a million jobs at the height of the recession in 2009. Austrian and Dutch unemployment rates last year hovered around 4 percent in part thanks to similar efforts.
Once the economy recovers, the French president said he wanted to give employers more flexibility permanently to increase working hours although he stopped short of advocating an end to his nation’s treasured 35 hour work week.
After five years as president, critics may wonder why Sarkozy didn’t seek to learn from the German success sooner. In the aftermath of the 2009 financial panic, he spent more time lambasting the “freewheeling Anglo-Saxon model of finance” than pushing for the sort of entitlement and labor market reforms that are necessary if France is to regain economic competitiveness relative to Germany.
Politically, there is no better time than the present to aggressively champion a pro-growth agenda for the conservative. His socialist rival for the presidency, François Hollande, may run on a platform of defending the welfare state from callous budget cutters on the right but he does so in a managerial fashion that appears to resonate with centrist French voters, a constituency that Sarkozy cannot afford to lose if he is to make it into the second round of the presidential vote in May.
The one structural reform enacted during the Sarkozy presidency was a raise in the retirement age from sixty to 62 years of age. Even if France’s public pension system is still projected to fall into deficit by 2018, the left is rallying against the measure and in staunch defense of the 35 hour work week. If Sarkozy really means to take the country in a different direction, he started to make the case for it this weekend.
In doing so, he cannot act too much of a European for it would enable the isolationist Front national to attack him from the far right. Some 20 percent of likely French voters, many of them small businessowners and blue-collar voters who have seen their industrial jobs outsourced to low wage countries, would back its presidential candidate, Marine Le Pen. She advocates a protectionist economic policy and French withdrawal from the eurozone. Sarkozy needs her voters too if he is to win again.