Will Fabius Coax The French Left Toward The Center?

Has France finally found its answer to Gerhard Schroder and Tony Blair? In French Finance Minister Laurent Fabius, it may have. Although the ambitious 54-year-old former Prime Minister got off to a slow start after his appointment in March, Fabius is now pushing hard for his fellow Socialists to adopt the business-friendly economic policies of Germany's and Britain's center-left governments.

Indeed, Fabius has just presented Socialist Prime Minister Lionel Jospin with a proposed $17 billion tax cut, the biggest in 50 years. The package includes such un-Socialist measures as tax relief for France's wealthiest households and biggest corporations. And on Aug. 24, the Finance Minister wrote a front-page article in Le Monde calling on the government to rein in spending and ease up on enforcing the 35-hour workweek enacted by the Socialists themselves. Fabius is a moderate who shares the free-market leanings of former Finance Minister Dominique Strauss-Kahn. But while Strauss-Kahn worked behind the scenes, Fabius is taking his case to the public.

It's all a lot more than Jospin bargained for when he tapped Fabius--a veteran Mitterand-era politico--to help shore up his Cabinet after government-employee unions derailed a modest package of tax and budgetary reforms. Jospin wanted to profit from Fabius' political skills. But Jospin is far less enthusiastic than either Schroder or Blair about economic modernization and has reacted cautiously to Fabius' reform proposals.

COMPETITIVE LAG. Still, Fabius has a good shot at getting things moving. France's economy is chugging along at a 3.6% pace, which is expected to bring a $9 billion tax windfall this year. In the past, the Socialists would have plowed that money into government spending. But Jospin, who is preparing to run for President in 2002, wants to share the bounty with taxpayers. Already this year, the government has cut the value-added tax by a point, to 19.6%. Jospin may also offer relief from soaring oil prices by slashing taxes on fuel.

Fabius wants to go much further, though. He would lower the punishing 54% income-tax rate paid by the richest households and eliminate a tax surcharge on the country's biggest corporations, cutting their effective tax rate from 36.6% to 33.3%. Such ideas are anathema to many on the French Left. But Fabius warns that with tax cuts sweeping the Continent, France is losing its competitive edge. Germany and Spain have slashed tax rates, and even laggard Italy is considering reductions. France's tax system is "a major structural handicap for our economy," Fabius wrote in Le Monde. French taxes gobble up 46% of the economy, more than any major European country. Fabius' plan would lower them over three years to about 44%, which would still be considerably above Germany and Britain.

Politically, Fabius has chosen an opportune moment to strike. Jospin's government has been weakened by internal disputes and put on the defensive by French employers, who are balking at paying for costly social programs. The Socialists need to broaden their appeal to middle-class voters, who seem in tune with Fabius. An Aug. 30 poll by the business daily La Tribune showed that 57% of French favor an income-tax cut, up from 29% a year ago.

Even if much of Fabius' tax plan is enacted, as seems likely, it's less certain that the Socialists will heed his calls for cost-cutting. But Fabius could have the last laugh. Ousted from government in 1986 in a scandal over HIV-tainted blood, Fabius has long been viewed as a rival to Jospin. If Jospin fails in his 2002 Presidential bid, Fabius could be chosen as party leader. Then he could, like Schroder and Blair, truly place his stamp on the French Left.

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