France now Europe's tiger economy

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The Independent Online
EVERYTHING IN Lionel Jospin's socialist garden is rosy - or seems to be.

Politics resumed in Paris this week after the long summer break with the news that the French economy is booming, unemployment is melting and taxes are falling.

Mr Jospin, the Prime Minister, has even promised "full employment" - a phrase long banned from the French political lexicon - within a decade. His officials, and the left- leaning parts of the French press, have also taken pleasure in posting the score in the undeclared ping-pong match between Jospinism and Blairism for the loudest bragging rights on the European centre left. The joint Tony Blair and Gerhard Schroder attack in June on the "rigidities" of traditional European economic policies still wrankles in Paris.

In go-ahead, deregulated, New Labour Britain, growth in the first 18 months of Mr Blair's rule was 2.7 per cent. In ante-diluvian, over-regulated, "Old Labour" France, growth in the same period was 4.7 per cent.

France is now creating jobs faster than any other large, developed country in the world, save the United States - 750,000 new jobs in the past two years. Although unemployment remains high (11.2 per cent), the figure has fallen almost every month since Mr Jospin came to power. It could come down to 7.5 per cent in five years on present trends, according to a recent, official study. Tax revenues are so buoyant that Mr Jospin was able to announce a pounds 3.8bn cut in taxes last week, mostly in reduced VAT.

The blizzard of positive figures suggests that the Jospin government will enjoy the smoothest September rentree of any French government for years. But life in the fragmented world of French politics is rarely so simple. Mr Jospin's personal popularity is high but his socialist-Communist- Green coalition is less stable than it has ever been.

The Greens, emboldened by their success in the European elections, have been trying to throw their increased weight around. They want an extra seat in the cabinet. They want Jospin to abandon France's dependence on nuclear energy, when a new generation of power stations becomes due early in the new century. They want a proportional system of voting in parliamentary elections, which would cement their position as the new second power on the French left, displacing the Communists.

On the nuclear issue, in particular, they have warned, they would be ready to quit the coalition. The Prime Minister has stood, mainly, firm. He ruled out a greener cabinet; he has ruled out returning to a PR list system in national elections. He has, however, given a vague promise of a referendum, or at least a "vigorous national debate", before any decision is taken to build power stations.

What is unclear is whether this will be enough to head off a terminal split in his coalition but the good economic news should buy him some time.

After two decades of economic gloom, what has gone right? And how much credit can Mr Jospin, his finance minister, Dominique Strauss-Kahn, and the employment minister, Martine Aubry, take for the success?

Ms Aubry claimed this week the rapid fall in unemployment should be attributed in part to her interventionist policies - a job-creation scheme for young people and the reduction of standard working hours from 39 hours a week to 35. The youth scheme (186,000 jobs created) has been a success, although few of the jobs seem likely to become permanent. The 35-hour week remains savagely controversial. The government says it has created 118,000 jobs already but this is disputed by employers and unions.

However, nearly all of the new jobs created - mostly in new technologies - can be explained in other ways. The approach path to the single currency was painful, forcing France to dampen demand and maintain cripplingly high interest rates. Now the single currency is in place, France is benefiting from a virtuous cycle of low interest rates, low inflation and delayed domestic and foreign investment. Similar to President Bill Clinton in the United States, Mr Jospin inherited a recovery already on the way. His main claim to credit is that he has pursued a centrist mixture of policies - keeping down taxes, boosting internal demand, abandoning his original anti-EMU stand - which have helped the recovery, rather than impeded it.

In practice, the differences between Jospinism and Blairism are not so great as both sets of propaganda like to pretend.

Government economists point also to an unexpected bonus. Until a couple of years ago, the view was that France could reduce unemployment only if its economy grew at a rate of 2.6 per cent a year. Now the French economy appears to be creating "net" jobs once growth reaches 2 per cent. The explanation seems to be that France is changing, almost unknown to itself.