Financial Timnes
Published: May 9 2007
What does the election of Nicolas Sarkozy mean for France, the European Union and the world? The answer will depend on whether what now emerges is a European France, a French Europe or a France set against Europe. Any of these three outcomes is possible. Only the first would be desirable. Which it will be depends on Mr Sarkozy’s true identity. Will he be an economic liberal or a populist interventionist? It is probable that he will turn out to be a mixture of the two. If so, his arrival is likely to deliver the last of the three alternatives: France against Europe.
The French agree on few things. But on one thing, they have close to a national consensus: free markets and free trade are a diabolical Anglo-Saxon plot. In a thought-provoking book on the challenge for French policymakers, Georges de Ménil, himself an American-trained liberal economist, ascribes this hostility to the legacies of Catholicism, Cartesian rationalism, revolutionary utopianism, nationalism and the dominance of the state*.
For a modern politician of the right, such as Mr Sarkozy, it is the last two elements that are most important. It leads him, both instinctively and as a matter of political expediency, in the direction of Colbertian mercantilism. The policies of Jean-Baptiste Colbert, minister to Louis XIV between 1647 and 1669, had three characteristics: dismantling internal barriers to commerce; protection against foreign competition; and promotion of domestic industry. In the US a not dissimilar body of ideas is associated with the name of Alexander Hamilton.
If one adds to Colbertian mercantilism the need to gain power in a country with closely interwoven populist and Bonapartist traditions, a Mr Sarkozy emerges. Here is a man determined to inject dynamism into an ossified French domestic economy, while protecting industry against “unfair” foreign competition. Here, too, is a man who cannot understand the notions of a central bank independent of government or an exchange rate set by the market. None of this should be surprising. The combinations are as traditional as they are problematic.
France does indeed need domestic reform. This is still a rich country with superb public services and an enviable way of life. But gross domestic product per head has been in decline, relative to the US and UK, since the early 1990s. The same is true of output per hour worked, even though its level remains very high. The unemployment rate is now higher than in all other big western European countries (see charts).
Public spending, at 54 per cent of GDP in 2006, was the second highest in Europe (after Sweden). According to the Organisation for Economic Co-operation and Development, it was 8 percentage points higher than in Germany, despite the latter’s post-unification burden. Gross public debt was 75 per cent of GDP at the end of 2006, against Germany’s 71 per cent and the UK’s 48 per cent. While French export performance compares well with the UK’s and Italy’s, it has fallen far behind Germany’s: last year French merchandise exports were $489bn, against Germany’s $1,111bn.
The arguments for liberalisation, particularly of the labour market, fiscal retrenchment and reform, especially of the public sector, are overwhelming. Yet, in setting out on this path, Mr Sarkozy will provoke well-organised vested interests: above all, people with secure jobs and those who hope to obtain them. The French street has defeated the mighty French state time and again. History could well repeat itself.
This struggle may prove to be short or long, successful or unsuccessful. But it is certain to be of more than local interest. A government under domestic pressure will search for a unifying external enemy. The candidates are many: the European Commission; the European Central Bank; Anglo-Saxon free marketeers; Asian “social dumpers”; and desperate would-be immigrants. In his campaign, Mr Sarkozy has already auditioned all of them for this role.
This brings us back to France in Europe. For excellent reasons, European economic integration is built on a level competitive playing field, just as the monetary union is based on central bank independence and tough control over inflation. The EU is also bound by international agreements that guarantee liberal access to foreign producers and national treatment for the businesses operating within its market.
How, then, is Mr Sarkozy’s relaunched France going to fit into this framework? One possibility – the most desirable – is what I have referred to as a “European France”. In other words, France will, willy nilly, accept the constraints imposed by membership of the EU. It will accept, in short, that “l’exception Française” is incompatible with the principles of equal membership of the EU.
Yet what Mr Sarkozy has said in the campaign suggests strongly that he does not accept, or even understand, this idea. He wants a French Europe, instead, one in which his dirigiste approach is translated to the European level: an ECB under political control; a European industrial policy; and EU preference, by which he means greater protection against disruptive foreigners.
Yet a French Europe is unobtainable, perhaps even more today than in the past. Historically, French leaders have adjusted to this, albeit reluctantly. They have accepted German views on competition and central banking and their partners’ views on trade liberalisation. They did so for a strong reason: they desperately wanted more integration.
Today, however, France does not seek further integration. If Mr Sarkozy will reject a European France and cannot obtain a French Europe, the outcome must then be conflict between France and Europe. The likely result of his election, therefore, is of a France divided internally and intransigent externally. The consequences for the EU are as evident as they are depressing.
Needless to say, this outcome is not inevitable. Under Mr Sarkozy, the French economy may rediscover its élan, France may regain its confidence and the French may even accept a globalising world economy. The country may then be reconciled to a market-based EU. Miracles do happen.
Yet that happy eventuality is far from likely. Mr Sarkozy has been willing too upset many of his country’s partners in the past. It is all to easy to imagine his making such conflicts with them his way of life in the future. If so, relations between France and the rest of Europe are going to be bumpy, and perhaps much worse than merely bumpy, in the years ahead.
*Common Sense: Pour débloquer la société Française, Odile Jacob 2007