Why Germany and France Are Veering Left

Europe's business executives have had plenty of pleasant surprises in the past few years: low inflation, decent growth, and best of all, reform-minded governments. Even the center-left administrations of French Premier Lionel Jospin and German Chancellor Gerhard Schröder came through with tax cuts, extra deregulation, and other measures to zip up growth.

But reform is stalling this year, for the simple reason that voters don't like pain. National elections are coming up next year in France and Germany, and the Jospin and Schröder governments are already backpedaling on the drive to overhaul their economies. From shelved privatizations to increased social spending to a French law penalizing companies for laying off workers, the leaders of Europe's two biggest economies are scrambling to keep their left-wing constituents happy--even if that means leaving economic modernization by the roadside. "The speed of reform definitely has slowed," frets Ulrich Schumacher, chief executive of Munich-based semiconductor maker Infineon Technologies. "I hope it doesn't move in the other direction."