Nicolas Sarkozy, the newly elected president of France, faces the important task of reforming his country’s economy. Although France is one of Europe’s most productive economies, it is burdened by a high unemployment rate of between 8% and 9%, even higher than in Germany. At a time when the European Union as a whole has been growing, the French economy has been one of the slowest performers, with growth of only 2%. The first step is to make French institutions more flexible, and Sarkozy has already announced that he will reduce the number of ministries to 15, which is half of the current number.


Gayle Allard, economics professor at the Instituto de Empresa business school in Madrid, believes that Sarkozy must start by undertaking a profound restructuring of the labor market and its unemployment system, which makes it so easy to receive benefits that only 58% of the population is actually working. On several occasions, Sarkozy has declared that “France has to work more,” and he has made it clear that he opposes the 35-hour work week.


Along the same lines, Juan Ignacio Sanz, professor of law at Esade in Barcelona, believes that the right place to begin “is to straighten out the French economy through work, sacrifice, and getting up early in the morning.” And Sarkozy will have to do something to contain salaries. “That is the only way to [rise] to the same level as Germany,” says Sanz. Nevertheless, those kinds of measures are not very popular. The CFDT and CCT labor unions have acknowledged Sarkozy’s victory in the second round of voting on May 6, but they have told the new president that he must maintain a social dialogue. “Respect for our institutions and for the quality of dialogue and negotiation is essential,” the CFDT has stated. These warnings from the two labor groups, which have a total of 1,500,000 members, suggest the kinds of problems Sarkozy will face when it is time to reform the French labor market.


Sarkozy’s room to maneuver will also depend on his ability to form a parliamentary majority after the next legislative elections in June. According to the latest polls, the Union for a Popular Movement (UPM), the right-wing party led by Sarkozy, could easily hold onto its majority because of internal squabbling within the Socialist party following the defeat of its presidential candidate Segolene Royal.


Deep Reforms


Sarkozy has promised tax cuts and measures to reduce the debt, but analysts are focusing their attention on his labor reforms. How and when will they come about? Allard believes that it is hard to know whether there will be a lot of changes but she is convinced that Sarkozy has enough time to carry out such reforms, despite the bad press they could generate. That’s because the next legislature will be in office for five years – possibly enough time to rebuild Sarkozy’s image, especially if he manages to get the expected results. “Although it is not politically viable, Sarkozy will have to undertake these reforms in, at most, two or three years, or it will be too late,” says Sanz, given all the promises Sarkozy made during his election campaign. “If anyone is strong enough to undertake these reforms, that person is Sarkozy.” The new president has shown his “decisiveness and character but he will have to make unpopular decisions,” such as cutting social welfare benefits. “So far, Sarkozy has shown that he has a consistent approach.”


According to Allard, the French labor market is the only one in Europe that has yet to be reformed. It needs mechanisms for enhancing flexibility, such as those that make it easier to fire workers. France has an excessive number of early retirees, imposing a burden on the country’s level of productivity. Meanwhile, the youngest sectors of the country are totally unprotected. They are suffering the consequences of a precarious labor market, in which work contracts are more likely to be temporary and salaries are lower. The idea would be to balance the mechanisms for protecting workers in such a way that no single group is shielded excessively — such as workers with several years of seniority –- to the detriment of generations of new workers just moving into the labor market.


Sarkozy’s other fundamental pillar involves reforming the unemployment compensation system so that the French economy can once again grow quickly. “It is a magical combination,” says Allard, adding that the current system provides an “incentive to live without working.” For example, it is all too easy for people to receive unemployment assistance. They can register over the Internet rather than visit an office and demonstrate, in one way or another, that they are making a serious effort to find work, such as going to job interviews. Allard recalls a similar situation in Denmark, which reformed its system for providing unemployment assistance some years ago. As a result of those reforms, Denmark managed to reduce its unemployment rate by more than four percent. That kind of reform does not mean putting an end to unemployment payments. However, it will improve the way France manages social welfare benefits so that there is a direct relationship between unemployment compensation and the country’s social and economic realities.


A More Liberal Francewithin the EU


Sarkozy has accused the European Central Bank of causing many of Europe’s economic problems because of the ECB’s policy of strengthening the euro, which makes European exports more expensive. The ECB is more worried about controlling inflation than about creating jobs, Sarkozy argues. For his part, Joaquin Almunia, the EU commissioner for economic affairs, believes that Sarkozy can help to carry out the reform of European institutions as the EU continues to expand. Such a reform would be made in cooperation with Germany. Nevertheless, Almunia has criticized Sarkozy, asserting that “the ECB is [an] independent [institution], and you have to respect its job.” Almunia also says that structural problems of some [EU] member states are due more to their failure to make profound reforms than to the policies of the ECB.


To some extent, Sanz agrees. “Sarkozy makes a good team with German chancellor Angela Merkel,” who has committed herself to relaunching the European Constitution initiative in 2008. It would help a great deal if Germany could count on support from France, which voted against the treaty in the past]. When it comes to working with Germany, Sanz believes that Sarkozy is “much better” than his former socialist rival Ségolène Royal. Beyond that, Sarkozy represents “a return to economic liberalism,” which could help a great deal to revitalize the Old Europe. In recent years, France has been characterized by [a governmental policy of] interventionism. Allard suggests that Sarkozy “appears to take a less nationalistic and more realistic position, which would have lots of benefits for Europe.”


A Taste for Controversy


One of Sarkozy’s first steps was to name François Fillon as prime minister. Fillon is one of his most moderate allies, and his appointment was aimed at winning the support and collaboration of the French left, who view Fillon as one of the most approachable right-wing politicians. In contrast, Sarkozy has acquired a reputation for being controversial. Over the past five years, his taste for controversy and his talents as a communicator have led him to perform the role of France’s political troublemaker.


Sarkozy is a 52-year old Parisian of Hungarian origin. He did not pursue a traditional career path; his parents expected him to study at ENA, France’s national school of public officials. Instead, he earned an undergraduate law degree as well as a diploma from the Institut d’Etudes Politiques (better known as “Sciences Po”) in Paris. He began his political career in 1977 at the age of 22, when he became a member of the city council in Neuilly-sur-Seine, a wealthy suburb. At the age of 28, he was elected mayor of the same town. Skilled at establishing relationships with influential people, it wasn’t long before he won the confidence of Jacques Chirac, who headed the RPR party, predecessor of the current UMP party. Nevertheless, Sarkozy also made a major mistake. In 1995, he publicly supported the candidacy of Prime Minister Edouard Balladur, rather than that of Chirac, his mentor and model.


Sarkozy was drummed out of power circles by newly elected president Chirac, who refused to pardon Sarkozy for what he considered an act of betrayal. To emerge from the dead end he was in, Sarkozy had to be as resourceful as possible. In 2002, he made a comeback as interior minister in the first cabinet of prime minister Jean-Pierre Raffarin (2002-2005). It was during that period that Sarkozy embarked on his campaign for the presidency.


He became the “number-one policeman in France” because he valued the role of security forces, and gave them greater freedom to act. He also supported the police in their fight against criminals. Sarkozy was not a man to mince words. He promised to battle against the “riffraff and hooligans” terrorizing outlying neighborhoods. He did so even at the risk of provoking the wrath, not only of the criminals, but of the immigrants, whom he mentioned on several occasions. Sarkozy’s political adversaries accused him of igniting the disturbances in those neighborhoods in the fall of 2005.


Indeed, many analysts felt that some of his declarations were dangerous. On one occasion, he even said that he was going to “clean the neighborhoods with water cannons.” The last chapter in the battle took place in February 2007 when Sarkozy backed a crime prevention plan based on reforming a text written in 1945. In December 2006, he argued that the current wave of crime is different, because “in 1946 and 1947 we didn’t experience the kind of conditions we face today — an excessive concentration of people of immigrant origin in neighborhoods where there are often significant numbers of young people.” 


A pragmatic Catholic, Sarkozy broke taboos by establishing new relationships between the government and religious groups. He created the French Council of the Moslem Faith. One of his major slogans involved re-strengthening public authority by pursuing a policy of “zero tolerance” and greater legal firmness. In 2004, he was named minister of economics and finance, a post he abandoned at the end of that year after he was elected president of the UMP, with 85% of the vote. That same post had put Chirac in a strong strategic position to run for the presidency on three occasions before being elected. In 2005, Sarkozy returned to the post of interior ministry in the cabinet of Dominique de Villepin. He used that position to boost his election campaign because it enabled him to act and speak simultaneously about immigration and security issues.


Now he faces the great challenge of reforming labor, one of the most controversial and difficult challenges of his new presidency. In a country where labor unions have a great deal of power, some experts consider Sarkozy’s plan to be political suicide.

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