View from Paris: Friends fight a duel as gloom crosses the Channel

Two months after taking office, Edouard Balladur, France's Gaullist Prime Minister, has summed up the country's economy in 1993 as 'the worst year since the post-war period'.

Coming from a man who cultivates his calm, the words are ominous, even if, at the same time, his government has announced a privatisation programme. Scheduled to start in the autumn, this will clearly have to wait for better days before it has a hope of moving into high gear.

France has come late to recession and the spectres of gloom that have hung over Britain in the 1990s have suddenly made it across the Channel. Unemployment, already nearly 11 per cent of the population, is leaping upwards. In April another 45,600 jobless were registered, bringing the total to 3.112 million, and the pessimists are forecasting that the figure may be hovering around the 3.5 million mark in December. According to a recent Senate report, unemployment is growing 'by two people a minute'.

Against this background, the industrialists who thought they were the natural constituency of Mr Balladur's centre-right coalition are disappointed and frustrated with his first economic moves and the Bourse has been sluggish since the conservative victory. The markets were more buoyant after he announced measures to boost the economy and after the privatisation announcements. But as he urges industry to go softly on redundancies, the disappointment is threatening to turn into a quiet feud between business and the government.

The overall picture retains a very interventionist French look. As some companies have offered their staff a choice between salary cuts or redundancies, the government this week announced a plan to make up 50 per cent of salary cuts to alleviate the hardships.

As for the privatisations, the government has made it clear that its plans to sell off Air France, Aerospatiale, Renault and 18 others over the next five years will not stop it keeping 'a golden share' in some, even if a 20 per cent limit on foreign ownership has been lifted.

Economic package

Mr Balladur's first package of economic measures was announced in muted style a month ago just after the suicide of Pierre Beregovoy, his Socialist predecessor. It was billed as an attempt to increase revenues - most notably by raising the 'generalised social contribution', a health service tax, and putting up taxes on petrol and alcohol - and to stimulate the economy.

Apart from a drop in interest rates from 11 to 8 per cent, which has yet to boost the housing market, the government proposed to take over social charges for lower-paid workers from employers.

Employers' contributions, often about a third of the salary bill, are a bone of contention in French industry. Without them, the employers say, they could plough more money back into their businesses and take on more people. The Balladur government's measure was seen simply as too little, too late.

The problem here was that Francois Mitterrand, the Socialist President, made it clear several weeks before March's general election that he would use his constitutional powers to make life difficult for the government if the right touched les acquis sociaux - social gains. He can refuse to sign decrees and delay the application of new laws, for example.

If the employers' contributions were radically cut, this would inevitably chip away at the high level of French social and medical services. Part of Mr Balladur's mission is to run the country until presidential elections in 23 months' time in such a way as to ensure that the right can ease itself painlessly into the Elysee Palace. A fight over social issues with the President is just the sort of combat that could shake the right's dominant position. Mr Balladur said this week, albeit in another context, that he did not want to 'add a political crisis to the economic crisis'.

Demonstrating that he is nothing if not flexible, Mr Balladur modified his original economic measures after two weeks and announced a Fr40bn ( pounds 4.76bn) bond issue. Convertible into the shares of privatised companies once privatisation gets under way, the money raised will be largely used to pay for government anti-unemployment measures.

Over the past few days, the duel between the government and the employers has come more into the open. On Wednesday, during a lengthy television interview, Mr Balladur said: 'It is no longer the time to put endless questions,' as he discussed the role of French business in combatting unemployment. The government and parliament had 'done most of what they could'.

Francois Perigot, the head of France's employers' federation, responded the next day by questioning the real extent of the government's measures so far. They had fallen far short of employers' hopes, he said, but he would be seeing Mr Balladur on Monday with a plan for recruiting workers, particularly among the young.

Protectionist talk

Into this picture of economic despondency, relieved by the occasional blip, have come reminders that France is living through a global crisis that is probably going to get worse. This has given rise to the sort of talk that France's partners would probably describe as protectionist.

On Thursday, Jean Arthuis, a centrist senator, gave Mr Balladur an alarming report on the effects of European companies moving industry and even services, such as accountancy departments, outside Europe, particularly to Asia. France, Mr Arthuis said, had already lost 450,000 jobs this way in 15 years and the European Community as a whole stood to lose between 3 million and 5 million in the relatively short term.

Apart from such examples as Lufthansa moving its ticketing operations to the Philippines, Mr Arthuis pointed a finger at the French army, which ordered 90,000 tracksuits, at a saving of Fr540,000, from an Asian supplier. Because of its high social charges and company tax, France was particularly vulnerable to delocalisation, he said.

As for the word 'protectionism', Mr Arthuis said: 'Personally, it doesn't bother me. We have to introduce a real community priority and make it respected.' Otherwise the EC would become 'a vast supermarket to exchange merchandise manufactured elsewhere'.

Europe, he said, could exist only if it protected Europeans. He condemned what he called 'Euro-mysticism which is tending to turn into Euro-masochism'.

For Le Monde, Mr Arthuis, a member of one of France's most pro-European political families, was implicitly questioning that cornerstone of modern French economic policy, the strong franc. This, the newspaper thought, 'says much about the perplexity and anxiety of politicians of all sides when faced with today's recession'.

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