Tuesday, 29 May 2007

Sarkozy’s economic reforms

‘Energetic’ is the first world that comes to my mind, when I look at France’s newly installed president Nicolas Sarkozy less than a fortnight into his five years in office. He has promised the French people a first wave of reforms in just a hundred days.

Two thirds of the French voters are satisfied with their new head of state, reports Le Figaro on 26 May 2007.

More important, however, than honeymoon polls and an energetic image is if Mr Sarkozy is going to do the right things for France, Europe and the world.

For an eminent background story, turn to “In Sarkoland”, by William Pfaff in the New York Review of Books. Here, just a snippet on economic reform:

“He is not really an economic liberal in the European sense either, pro-business and a free-trade advocate – as in the liberal parties across Europe. He advocates some deregulation of the French labor market, cuts in bureaucracy, and reduction of debt, but he also believes in “economic patriotism” and government interventions in industries important to the French economy.”

Charles Grant of the Centre for European Reform wrote a piece called “Nicolas Sarkozy: Turkophobe and protectionist?” where he reasoned:

“The other worry about Sarkozy is the apparent contradiction in his thinking. He supports Thatcherite policies at home – he promises to slim the state, cut taxes and liberalise the labour markets – but attacks the Commission’s trade and competition policies, as well as the monetary policy of the European Central Bank. In his first speech as president-elect, he asked France’s partners “to hear the voice of the peoples who want to be protected”. In his recent book, I was struck by his vehement opposition to foreign ownership of French companies.”

“If Sarkozy does try to combine economic liberalism at home with protectionism at EU level, he will be heading for a big clash with his EU partners – most of whom support the EU’s broadly liberal trade and competition policies.”

Then we have the delicate question of world trade negotiations (WTO) and their linkage to the common agricultural policy (CAP) of the European Union. Charles Grant assumed that “Sarkozy is unlikely to share Chirac’s visceral hostility to reform of EU farm policy”, but during his visit in Brussels Sarkozy said that “he would refuse to sell off the interests of French agriculture in WTO negotiations”. He would not risk Europe’s agricultural independence in exchange for a better opening-up of services. Mr Sarkozy expected Europe to take a much tougher stance in global trade talks (as reported by EurActiv, Le Monde, the Financial Times).

There have been mixed signals on agricultural reform. Philippe Ricard wrote in Le Monde that the government doesn’t look “hermetically closed” to CAP reform, but without haste. In the same newspaper Eric Le Boucher predicted that the ones who expected a liberal opening are going to be disappointed.

Other controversial statements by president Sarkozy include “a protective Europe”, plans to increase French government ownership in the ailing aerospace giant EADS, a veritable economic and fiscal shock for France (taking leave of budgetary restraint within the Eurogroup), while at the same time announcing coming initiatives on the Eurozone’s economic governance, which might include measures to harmonise indirect and company taxation.

Pessimistic assessments speak of coming clashes on economic policy with Mrs Merkel, Mr Brown and Mr Barroso.

If president Sarkozy breaks with the Lisbon agenda, the stability pact, vital internal market rules and main tenets of EC competition policy he is going to have a hard time forging alliances among the EU leaders. His stance on these things and world trade won’t endear him to Europe’s and France’s emerging trading partners.

Ralf Grahn