France's electorate has posed questions beyond boundaries

The creation of the euro is a German decision, not a French one. The row about uprating the German gold reserves is much more important than the French voters
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So the French voters have spoken. The immediate reaction of the financial markets has been to downgrade the probability of European monetary union starting on time and/or to upgrade the probability that if and when EMU does happen, it will be with a weak euro. It is a line of argument which has obvious attractions and it would be silly not to acknowledge these currency implications. But I suspect that in five years' time this French vote will be seen as something different: a vote about structural change.

The conventional argument runs like this. The French voters have shown that they are unwilling to press on with the fiscal tightening associated with Maastricht. Already French qualification for participation in EMU is borderline: on strict interpretation of the 3 per cent deficit-ceiling France would be out. Now further fiscal tightening, if not completely out of the question, will be even harder to sustain. So the criteria for French entry into the euro club will have to be fudged to an even greater extent than previously intended. This will make it irrational to exclude other potential members like Italy and Spain. So Germany will be confronted with dumping the mark for what will inevitably be a weak euro - or dumping the project altogether.

Which way Germany will jump, faced with such an alternative, is too close to call. Membership would have to be approved by the German parliament, and the political dynamics are too complicated and too uncertain to be predictable. But the important thing to be clear about is that the creation of the euro is a German decision, not a French one. The row about the uprating of the German gold reserves is a much more important element in the balance of the euro than the response of the French voters.

On the other hand, when it comes to the willingness of a large European economy to carry out structural change, the French vote is enormously important. Here there are two completely opposite arguments, one held by perhaps 90 per cent of observers, the other by the remaining 10 per cent. The majority view is probably right so let's take it first.

This is that the French voters have signalled that they do not want rapid structural change to their economy. They would prefer to see a slowdown in privatisation, a modest expansion of the public sector, a cut in the working week, increases in wealth and income taxation and a cut in VAT. At least these were the policies advocated by the Socialists; if one were to stir in a little of the communist agenda, privatisation is halted, there are large increases in income tax and public spending surges.

Of course, in France, power is split with the president, so that the new government would not have the free hand it would have here. Nevertheless, the popular view is that French voters have put a brake on reform.

If this is right, the French economy will tend to continue to underperform over the next few years. This is not an utter catastrophe. In the very short term slowing the pace of reform does protect employment, and the present modest economic recovery will continue. So on a two-year view some progress will be made, though any reductions in unemployment are likely to be cosmetic - the result of government-sponsored make-work programmes, rather than genuine increases in demand for labour.

But on a longer view, the slow relative decline in the French economy, evident since the early 1980s, will continue. France will gradually continue to become a less effective competitor in world markets. That might, from a chauvinistic British point of view, seem quite welcome, but of course it isn't. To have a large neighbour going through hard times is bad news for the UK and bad news for Europe as a whole.

Indeed, an economically unsuccessful Europe would be destabilising for the entire world economy, for to have one of its big three time-zones underperforming will shift power in an unpredictable way. Europe is going to find the early part of the next century tough enough, for purely demographic reasons. Failure to make structural reforms - or rather slowness in taking them, for eventually change will happen - means that the European economy is battling into an even stronger head wind.

That is glum indeed, and it is probably right. But it is worth just acknowledging that there is another possible outcome, the 10 per cent possibility. It runs like this.

France has been unable to carry through significant structural reform since President Chirac was elected, despite the dominance of the centre- right in parliament. It has been unable to do so ostensibly because of continued labour unrest: strikes, barricades, arson and so on. But actually these are only outward manifestations. In reality it has been unable to change because of a widespread feeling the government lacks legitimacy. People are suspicious of its motives and doubt its competence. Result: policy paralysis.

Now there is a new and legitimate government, made all the more so because the victory of the left was so unexpected. Not one single opinion poll before the election predicted that the right would lose their majority. So now the president and his prime minister have to make it work. The key will be to what extent the need for change is accepted by the leadership of the left, and not just Lionel Jospin, once it confronts the reality of power. If the left is prepared to accept change, it has a much greater credibility in pushing it through.

Are there precedents? There is one in France itself. Do you remember the original Mitterrand administration in the early 1980s? It came to power on a loose fiscal policy/high public spending platform. After two years and a franc devaluation the policy was reversed: the whole austerity programme to which France has subjected itself started under the left. While we had tough structural reform and quite lax fiscal and monetary policy they had the reverse.

In the case of France it took a clear policy failure to force the switch to the franc fort, but arguably we have now had two years of failed attempts at reform so the path should be clear for sustained structural reform, carried through by the left while - so to speak - facing in the opposite direction. Indeed, you can even argue that laxer fiscal and monetary policies (which the left is demanding) are what France needs, provided they are coupled with structural reform.

If this line of argument is right, then the victory of the left is not an economic catastrophe, but rather the reverse: a base for the changes that France actually needs. But is that argument right? It is certainly very much a minority view and rightly so, but it is an intriguing possibility that could just happen.

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