Commentary: Suddenly, Reform Has a Fighting Chance in Europe

If the center-right wins in Germany, too, France's reform drive will get a big boost

By John Rossant

Is Continental Europe forever condemned to anemic growth, high unemployment, and social decay? Or can it find a way to be competitive and still guarantee its citizens safe streets, good schools, and public health-care? Part of the answer to that almost existential question surely lies now in France, following June 16 elections in which the country swung massively to the center-right. Top members of the freshly installed government say there is simply no time to lose to push through tax cuts, pension reforms, and measures to combat crime. With a parliamentary majority so huge there is virtually no precedent for it in postwar France, the new government "is obliged not to disappoint," says Prime Minister Jean-Pierre Raffarin.

There's no shortage of skeptics, of course. The last time the French Right tried to push through weighty structural reforms, the country was paralyzed by strikes--and the government was booted out in 1997. Eager to avoid another disaster, the Raffarin government may move too cautiously. Besides, President Jacques Chirac and the neo-Gaullists often seem just as statist as the Left. "They have the means to change France," says one top French CEO, "but will they?"

This time, the skeptics may be proven wrong--and the reason could be Germany. It is looking increasingly likely that center-right candidate Edmund Stoiber will defeat center-left Chancellor Gerhard Schröder in national elections on Sept. 22. In fact, Stoiber is gambling that the Chirac landslide will bolster his forces. If Paris and Berlin tackle structural problems in the same way, "this could be mutually reinforcing, and we could see a very important increase in competitiveness," says Jean-Louis Betbèze, chief economist at Crédit Lyonnais. There's a precedent: Former French Finance Minister Laurent Fabius won support for modest tax cuts by arguing France had to match cuts made by Germany.

Behind the scenes, Chirac and Stoiber already have been building bridges: Wolfgang Schauble, the former leader of the German Christian Democrats who is now Stoiber's chief adviser, has long enjoyed close relations with Chirac's neo-Gaullist party. Indeed, Chirac and new Foreign Minister Dominique de Villepin are already studying ways to relaunch the French-German partnership right after the German elections, say government sources in Paris. The alliance was long instrumental in setting the agenda for Europe, including monetary union. But Schröder proved more interested in cutting deals with the British and others. The rest of Europe, meanwhile, has looked less and less to the Franco-German combine for leadership.

Against this backdrop, officials in Paris are pondering a revision of the historic 1963 Elysées Treaty that established close institutional relations between France and Germany. A revised treaty, or a solemn declaration, could be signed as early as January, 2003, the 40th anniversary of the original. This could include a position on the future political leadership of Europe. "We're going to have to come up with an original model," says one Chirac aide working on the project, "a model that includes a big dose of German-style federalism with the idea that we keep the nation-state as the key unit of democracy."

True, there are a lot of "ifs" in these scenarios. If Schröder squeaks by, it will be hard to strike a far-reaching French-German New Deal. If Raffarin caves in to the unions, there won't be much hope for reforms. But the way Europe's political stars are aligning themselves, this could be the best chance in years the Continent has for long-needed changes.

Rossant covers European politics from Paris

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