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Sarkozy’s Basket

Wednesday, June 24, 2009 at 05:41 PM EDT

French investments might have seemed like a dreadful idea for the first two years of French President Nicolas Sarkozy’s term. After his election in May 2007, Sarkozy looked like a huge disappointment – unless you really enjoy tabloid stories. He divorced his wife, married the dramatically old fashioned ex-model Carla Bruni, and went on an enviable honeymoon in Egypt – but appeared to do nothing useful about France’s economic problems.

But now there’s some good news for French investments. As many good Frenchmen, Sarkozy might prefer first to concentrate on his private life when elected President. Once his private life is now complete, he’s been able to spare some time for France’s economic problems. And the results for France’s future economic performance and French investments are quite positive.

First, Sarkozy got rid of the 35-hour week. This economy destroying measure, by which companies were forced to set up a maximum 35 hour workweek, was brought in by Lionel Jospin, Premier Socialist in 2000, and has embedded itself throughout the French economy, increasing labour costs, dropping productivity and damaging French investments. Removing it will not make much difference for big business – as one union leader said “nobody wants to renegotiate the 35 hours and reopen Pandora’s box,” but it will make a huge difference for medium-sized and smaller businesses, which will be able to match their workforce with the demands of their business, without being forced to get into the rigid models by the state.

Sarkozy has also passed reforms freeing up France’s retail sector to increased competition with longer operating hours, tighter regulation of unemployment benefits, and autonomy for firms to negotiate directly with employees rather than deal with a union.

In addition to these economic reforms, Sarkozy has pushed through constitutional reforms, limiting the president to two five-year terms and giving the legislature more power to introduce legislation. That is not the big reform formerly announced, but just a first step in the way for.

The remarkable feature of Sarkozy’s split of reformism is that the French unions have been unable to connect and rely with the streets of Paris with major demonstrations, as they had done to stand several previous bursts of reformism in the last decade. A Day of Action protest in 19 March had only half the expected audience and the May nationwide strike had only 4% support. Point barre, end of discussion.

But Sarkozy’s tactic has been to move forward with reforms on several fronts at once; this seems to have worked during 2007, and Sarkozy’s opinion poll numbers have recovered from lows hit till late autumn of 2008, when the financial breakdown started. Yet, it is true that his attractiveness has endured since, similar to several of his colleagues in the European neighbourhoods.

Facts and figures to Sarkozy’s advantage

The benefits of these reforms will be seen most clearly in France’s next period of economic expansion, which may not be immediate because of the general global slowdown. France’s gross domestic product [GDP] is expected to decrease by 0.7% in 2009, according to the Economist, a bit better as the average for the 15-nation Eurozone as a whole.

On the bright side, inflation is expected to be only -3.2%, below the Eurozone expected average and well below U.S. inflation rates. The balance of payments deficit is only 1.6% of GDP, well below both the United States and Britain, in spite of the current high valuation of the euro. Euro short-term interest rates are currently 3.55%, above France’s inflation level, and French long-term government bonds yield 2.8%, well above inflation, so there is no danger of an inflationary spiral. A deflationary situation is yet possible in early autumn 2009,

French economy handicaps

It is a mandatory to get out the French companies off public handouts: a sort of usual public allowances run between companies, authentic availability of free / cheap working force, trainees and complete dependant underdogs, lack of competition in many sectors, lack of penalties for corporate officers, abusive tax exemptions / reductions, volunteer lack of judges at labour assessment and safety inspectors. The french are among those of the OECD who work most for a grotesque wage related to the cost of living. It is most necessary to get effective control over the business and tax them only on their real add value and their employment rate. It is time enough of all these banks, estate agent or other telephone vendors that serve no purpose except to increase inflation and delay the French competitiveness. Investing in university research and development instead of distorting the economic market by offering it to a band of idle heirs.
Also, get out of the dichotomy between a left which would defend assistantship (giving out benefits) and a right who supposedly takes on all of the hard work.