After Five Years of Sarkozy, France’s Economy Still Stagnant

The president promised to “break with the past” but did little to reform France.

French president Nicolas Sarkozy will likely make it into the second round of his battle for reelection on Sunday, but his popularity is waning. French voters are tired of his erratic and ineffectual leadership and seem to prefer the bland and managerial Socialist Party candidate François Hollande who, according to opinion polls, would win the runoff election scheduled for May 6.

After five years in office, Sarkozy doesn’t particularly like to talk about his record. He does criticize his opponent’s tax and spending proposals, which would exacerbate France’s gaping fiscal and trade deficits and threaten its position as a core eurozone member state.

Hollande has vowed to renegotiate the European fiscal compact, which caps deficits at 3 percent of gross domestic product, and called for higher taxes on the wealthy, including a 75 percent tax on incomes over €1 million, to mend the budget shortfall.

Sarkozy has warned that such a tax hike would “discourage work” and “isolate France from the rest of the world.” He has suggested a “convergence” of tax regimes between stagnant France and prospering Germany yet his own conservative government has repeatedly raised taxes in the last year as part of its austerity agenda.

Consumption taxes on liquors, tobacco and soft drinks were increased 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.

France had a €96 billion shortfall in 2011 which was equivalent to 7.1 percent of GDP. The deficit is expected to come out at 6 percent for the fiscal year 2012. In January, the country lost its top credit rating from the Standard and Poor’s agency.

Hollande’s more sensational proposals — including the 75 percent tax rate, hiring 60,000 new teachers and subsidizing the creation of 150,000 jobs for young people — are unlikely to be enacted at this time of fiscal crisis.

The Socialist Party contender has to appeal to the far left though where Jean-Luc Mélenchon is running a far more inspiring campaign, championing a 50 percent increase in the minimum wage, a 100 percent tax rate on incomes over €360,000 and a law that would prohibit companies that are turning a profit from laying off workers.

Mélenchon is not expected to make the second round of the presidential vote when Hollande will need his supporters to win.

Similarly, Sarkozy is struggling to consolidate his right flank. The Front national‘s Marine Le Pen is seen as tougher on law and order issues and more adamant about restricting immigration than the president. She is also an economic nationalist, advocating a French exit from the European single currency and free-trade areas as well as NATO.

Le Pen and Mélenchon appeal to the same constituencies: retirees who fear reductions in their pensions and low wage laborers who either have seen their factories shutter and jobs disappear or fear that it will happen to them soon.

Across the political spectrum, candidates have laid the blame on globalization and “savage competition,” as President Sarkozy put it, from overseas. He said “no” in March “to a Europe that opens up its markets when others don’t.”

It’s not very convincing for the conservative president to rally against the evils of the “freewheeling Anglo-Saxon model” of international finance and trade as his rivals do when he simultaneously urges the French to work harder for lower wages to boost their nation’s competitiveness relative to other eurozone states, like Germany.

“The German economy chose to prioritize jobs, jobs, jobs,” Sarkozy said in January. “If it worked for them,” he wondered, “why wouldn’t it work for us?”

For starters, the French enjoy a 35 hour workweek and five weeks of legally mandated vacation per year. That is besides national holidays and plus compensatory time off for working overtime. That should amount to fifty days of paid vacation on average per year but combined cleverly with “bridges” over workdays that fall between off days, most French actually have a week off nearly every month.

It’s emblematic of a nation that doesn’t at all prioritize jobs and Sarkozy hasn’t dared challenge the French work ethic throughout his first term in office.

Even if the French work less, they are more expensive than their European counterparts. 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.

Government spending accounts for more than half of the French economy and finances entire industries, including electricity, postal services and railways which are owned either in part or completely by the French state.

There wasn’t a single privatization during Sarkozy’s presidency. The retirement age was raised from sixty to 62 years of age, despite weeks of protests from left-wing parties and trade unions, while other European nations are contemplating raising the pension age to 67, 68 or higher.

Government spending only increased when fiscal stimulus measures were enacted in response to the 2008 financial panic. France remains the top recipient of Europe’s market distorting agricultural subsidies. Price controls are in place for a number of products and services. French labor laws are notoriously rigid and discouraging companies from hiring.

After his election in 2007, Sarkozy announced, “The French have chosen to break with the ideas, habits and behavior of the past. I will restore the value of work, authority, merit and respect for the nation.” He hasn’t. Indeed, he is uttering the very same promises while the French economy remains in the lurch.