Commentary: Chirac's Move May Be A Europe Size Blunder

When Jacques Chirac ran for President two years ago, he vowed to let the French people decide on the question of Europe's biggest project: the creation of a single currency. On Apr. 21, Chirac found himself keeping his promise. By dissolving the National Assembly and scheduling elections for late May--a year early--Chirac has effectively set in motion a referendum on the euro. He is also putting fiscal austerity and France's place within the global economy to a vote. But what seems like good politics on Chirac's part may prove to be the blunder that he and Europe want desperately to avoid.

At first glance, moving up the date of national elections appears to be a smart move. For one thing, Chirac's conservative government has 464 seats in the 577-member assembly--such a huge majority that he could cede 175 deputies and still keep control for the remaining five years of his seven-year term. A narrower majority might actually make it easier for him to maintain discipline within the party.

But the campaign is already shaping up as a referendum on just how much hardship French voters will stomach for the sake of the euro and their country's competitiveness. The Socialists' professorial-sounding leader, Lionel Jospin, has warned that a renewed mandate for Chirac would be carte blanche to pursue "hard-edged capitalism"--tough to swallow in a nation with 13% joblessness. Chirac, meanwhile, is sounding more pro-Europe than ever as he asks the French to give him the green light for more reform. His argument: France must qualify for the euro, which he calls essential to break the hegemony of the U.S. dollar.

FED UP. Chirac and Premier Alain Juppe are sugar-coating their talk of further spending cuts with visions of tax cuts to follow. But they are running head-on into popular fear that France's battle with its gaping deficits is just beginning. The country will need a new interim budget this year to draw nearer to deficit requirements to join the single-currency club. Maintaining that position next year will be even tougher as the French get fed up with austerity.

In fact, France could scuttle the euro project. Rather than lining up behind Chirac's efforts at reform, the real political energy in France today lies with the xenophobic and virulently anti-Europe National Front, which is likely to end up with several assembly seats. And if social consensus has converged on any point in recent months, it has been on the desire by workers to win retirement at age 55 in a country that can't believe it needs to work more, not less, to make it in the global economy.

That volatile mix could backfire on Chirac. The Socialists have signaled a dramatic policy shift by ruling out tighter fiscal restraint to meet the single-currency criteria--even though achieving the euro used to be a Socialist cause celbre. Now they are effectively asking that the euro be delayed so France has more time to prepare. That strategy should play well. A Socialist government would also want to wait for Italy and Spain to join a monetary union from the outset, a prospect that drives Germany's hard-money vigilantes into frenzy.

Chirac, too, may strain relations with Germany. Until recently, France seemed a sure member of the single-currency club. Some observers even thought Germany might be the one to ask for a delay in the single-currency calendar, lest fiscally unworthy countries creep in under the wire. But now that France has put the issue into play, German officials are wondering if Chirac will stick to the single-currency plan if his party's losses are big. "If the momentum shows itself to be strongly against reform policies, we have to ask which way the French government will go then," says one German official. Even if Chirac wins a new mandate, he still may not clear up the doubts about what he'll do with it.

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