Sam Fisher
Banned
When French voters seated a Socialist Party president in May, they were led to expect a break from the pressures of excessive debt, budget austerity and economic decline.
Not happening.
Francois Hollande is proving that good intentions can't engineer a turnaround. When he came into power six months ago, Hollande pandered to his political base. He raised the minimum wage, lowered some retirement ages, increased taxes on the rich and promised to fund 60,000 new teaching jobs.
Within months, however, Hollande was backpedaling, saying France needed to raise taxes more broadly. At a news conference this month, Hollande stressed the need to make French business more competitive and defended the necessity of a higher value-added tax that regressively affects the poor.
Hollande's approval ratings have plunged. His zigzagging has some French longing for a return of Hollande's hyperkinetic predecessor, Nicolas Sarkozy.
France is enduring the inevitable consequences of overspending on social programs and overregulation of its labor market. Its companion impulse to overtax is being tempered by fiscal and financial reality. Even a nation rich in culture, resources and infrastructure can't keep borrowing money and raising tax rates forever. Citing the troubled fiscal outlook and "deteriorating economic prospects," Moody's Investors Service on Monday stripped France of its AAA credit rating. Rival rating agency Standard & Poor's had downgraded France from AAA months earlier.
America should heed the French lesson — especially with the automatic tax hikes and across-the-board spending cuts set for Jan. 1 unless U.S. lawmakers find a way to avoid that so-called fiscal cliff.
Unable to keep the promises he made, Hollande has pleaded for more time to set France on the right course: "Everything has been said, but not everything has been tried," Hollande explained. "I will do everything to ensure our turnaround."
Trouble is, he means everything. He will jack up taxes and jack up spending. He will court business investment with tax credits at the same time he tries to ignore the labor-market constraints that contribute so much to making France uncompetitive.
A recent International Monetary Fund report outlines how rigid, dysfunctional rules are at the core of the French malaise. Companies cannot readily adjust the working hours or pay of their labor forces to meet pressure from a Europe-wide slowdown. Layoffs are cost-prohibitive — although that hasn't stopped major employers such as Peugeot from announcing massive job cuts. No wonder France is in danger of lapsing into a recession.
With its well-educated populace and sophisticated business culture, France has more economic breathing room than a smaller, poorer nation such as Portugal. Yet it is precisely to Portugal that Hollande should look for an example of the resolve he needs.
Portugal has stuck with a program of austerity and debt-reduction despite severe economic pain and declining living standards. Its center-right government is now ushering in another austerity budget in the face of public protests. What's not obvious today but will be soon is how dealing forthrightly with its debt, reforming its markets and curbing its public spending will clear the way for growth in the future.
On a recent visit to Portugal, German Chancellor Angela Merkel endured some nasty public protests, including displays of swastikas and catcalls such as, "Merkel Nazi, Go Away." As head of Europe's largest and most successful economy, Merkel is pushing fiscal discipline across the continent. She recognizes it is a tough path to follow. But she is exactly right when she notes that Portugal's "conditions for growth" have improved dramatically, as a result of "the courageous action of its government."
For Germany, France is the bigger worry. France is healthier yet than Portugal, but as Europe's No. 2 economy — and Germany's largest trading partner — much is riding on Hollande's ability to nurse his nation back to vigor. Germans are skeptical: A recent headline in a prominent German newspaper asked, "Will France be the new Greece?"
Hollande has shown a willingness to adjust his policies. But his scattershot approach won't be strong enough to pull France out of its economic tailspin. What's needed is a coherent strategy.
Hollande has to muster the same political courage as leaders of Portugal and his counterpart, President Cavaco Silva, to make France competitive again.
http://www.chicagotribune.com/news/...-edit-france-1123-bd-20121123,0,7676798.story
