Riding through London in an open carriage with Queen Elizabeth II in mid-May--one year after becoming France's President--Jacques Chirac appeared to glow with new confidence. His upbeat mood was a sharp swing from just a few months ago, when France seemed headed toward turbulence and political paralysis. Bumbling policy shifts, tax hikes, and plans to slash welfare touched off a three-week strike in December. That forced Chirac and his Prime Minister, Alain Juppe, to back down on plans to shrink the costly social net, which hurts France's competitiveness and its hopes for a common European currency.
Now, these conservative leaders are finally learning how to govern France. They're practicing the art of nibbling at problems instead of biting off more than the coddled French will stand for. Instead of launching a broad welfare overhaul, they have executed a series of smaller moves--such as chopping medical costs and switching control of health care from unions to Parliament. They've also drafted deep defense-spending cuts.
BACK WAY. France's leaders are even finding backdoor ways to privatize politically sensitive companies without stirring waves of opposition. Just as Chirac was heading off to Britain for his state visit, Juppe said he plans to sell 6% of auto maker Renault, flagship of France's former state-led economy. The move aroused no backlash although it shaves the state's holding to less than 50% for the first time since 1946. Juppe is also cooking up a plan to privatize France Telecom that is designed to defuse workers' resistance to the move by first selling 10% to employees. Unions aren't unanimously opposed, which is progress. Chirac's government also plans to sell state-owned electronics giant Thomson and restructure the defense industry, although some lingering nationalist constraints could still snarl that effort.
While France's budget woes will take years to solve, "there's a perception this show is back on the road," says Michael Hughes, chief strategist at Barclays de Zoete Wedd in London. The franc is strong against the German mark, and the long-sluggish Paris Bourse is up 22% since October.
Now, buoyed with success, Juppe is working up an austerity budget for 1997. That's when budget deficits of European Union members must fall to 3% of gross domestic product to permit monetary union. Juppe vows to cut spending in real terms--a first in recent French history. His plans include more defense cuts and attrition in the ranks of civil servants. Few analysts think he'll meet the 3% goal unless France's weak economy turns up sharply. But strong movement in the right direction may be enough to achieve a single currency.
If he pushes too hard, Juppe may again trigger commotion in the streets. But many observers doubt that unions will muster much support for protests they plan in coming weeks over public-sector cutbacks. After venting their anger last fall, "people are tired of protesting, and they're accepting the inevitable," believes Sylvain Hefes, managing partner of Goldman, Sachs & Co. in Paris.
Although Chirac is breathing easier, he probably wouldn't win France's presidency today. In one poll, 44% of voters express confidence in his leadership. Juppe's score is 36%. But rumors that Chirac might dump Juppe for a new Premier have died, and the next parliamentary elections are three years away. With luck, Chirac and Juppe may be past the most painful budget-cutting by then--and able to crow about the payoffs they've won for France.