Why France Must Not Turn Inward
So thorough was the rout of France's Socialists in the first round of legislative elections on Mar. 21 that a shaken former Prime Minister Michel Rocard could only describe the results for his party as "sad." But risky might be the better word. True, the 80% of parliamentary seats that the winning center-right coalition should accumulate will provide leeway to govern--although a resourceful but ailing President Francois Mitterrand will try to trip up the government and revive Socialist hopes for presidential elections in two years. But the victors' real test will be to avoid a tilt toward economic nationalism that could rattle an already fragile global economy.
In France, political labels of right and left aren't reliable indicators of adherence to free-market policy. The departing Socialists, for example, made great strides in honing French industry's global competitiveness. The problem now is that France's economy and social cohesion are groaning under unemployment and real interest rates that both exceed 10%. And with a European upturn at least a year away, France's new government will be sorely tempted to do what much of Europe has done: turn inward and back off from commitments to the European Community and freer trade.
The politics of such a stance are persuasive. After all, the French electorate gave 12% of the vote to the neofascist National Front. And with European Commission President Jacques Delors a likely Socialist candidate for President of France in 1995, the winners in the latest election will be tempted to pick fights with Brussels. Indeed, the new government's two most prominent leaders, former Prime Minister Jacques Chirac and former President Valery Giscard d'Estaing, promised during the campaign to back French farmers in their fight against reduced farm subsidies negotiated between Washington and Brussels. Those lower subsidies form the cornerstone of a new round of global trade talks.
But France's new leaders risk making an historic mistake. If they give in to the nationalist impulse, France's new government will put itself on a collision course with the U.S., risk a rift with Germany, and call into question the legitimacy of the EC. Instead, to ease its domestic economic squeeze, the new government should initiate a temporary suspension in Europe's system of fixed exchange rates tied to Germany's tight-money policy. Only that would permit France, Spain, and others to lower interest rates without sparking another round of currency crises. And it must override the interests of its farmers to avoid a crisis of legitimacy for the European Community and a blow to the global economic system.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.