WHAT A DIFFERENCE a few months make. In June, at the G-7 summit in Halifax, incoming French president Jacques Chirac emerged as the star, convincing fellow leaders to push for a new peace initiative in Bosnia. Yet during last week’s signing of the Dayton accords at the Elysee Palace in Paris, Chirac could barely divert attention from the public-employee strike raging outside, France’s greatest political turbulence since May 1968.
Chirac’s difficulties marked the end of an amazing year for the 63-year-old former mayor of Paris and two-time prime minister. Although he stood at just 14 percent in public opinion polls upon announcing his candidacy in November 1994, Chirac captured the presidency by running an American-style campaign. He spent 184 days on the road, logging over 15,000 miles and hyping the populist theme that Parisian elites — especially the graduates of the prestigious Ecole Nationale d’Administration (E. N. A.), who run nearly every major institution in the country — are out of touch with everyday life.
Never mind that Chirac himself was a graduate of the school or that he was mayor of the very city whose elites he vilified. His message struck a chord in a nation plagued by 12 percent unemployment. While the other candidates, especially the ever-so-cautious prime minister, Edouard Balladur, remained engaged with day-to-day politics in Paris, Chirac carried a clear message through the provinces.
He attacked Balladur’s center-right government for heartlessly pursuing deficit reduction. Rather than stimulate investment through low interest rates, France needed to wage war on unemployment directly, Chirac argued. He promised to use tax cuts as a weapon in this war, thereby uniting the two poles of his coalition: welfare-state activists and supply-siders. The strategy worked. On May 8, 1995, Chirac was elected with 52.6 percent of the vote, even winning a majority of the unemployed.
Once elected, however, the president began to shed his supply-side optimism. He selected his closest ally, Foreign Minister Alain Juppe, to be prime minister. Juppe’s technocratic demeanor and E. N. A. pedigree were signs of politics as usual. Almost immediately, it was revealed that Juppe, his ex- wife, and his adult children lived in subsidized apartments owned by the city of Paris. When concern about a growing budget deficit began to overshadow the promised tax cuts and vaunted “war on unemployment,” Juppe introduced minor measures to increase employment — and actually raised taxes by $ 12 billion. Adding salt to the wound, in August Juppe dismissed his supply-side economics minister, Main Madelin, after Madelin had the temerity to suggest that public- sector workers should have to work as long as private-sector employees to collect pensions.
Lurking behind the decision to break his campaign promises was a question that Chirac had tried to finesse during the 1995 campaign: the status of European monetary union. The 1992 Maastricht treaty, which committed the members of the European Union to a single currency and set the ground rules for achieving it, had barely won approval in the French referendum of September 1992 Maastricht requires France to reduce its budget deficit to 3 percent of GNP by 1997 — from over 5 percent in 1995. During the campaign, Chirac acknowledged the need to get the country’s fiscal house in order, but he also noted reassuringly that the date for monetary union — January 1, 1999 — -could be revisited.
By October, it was plain that the vicious circle was unbroken: High unemployment was leading to increased social welfare spending, higher taxes, and lower growth. And Juppe’s failure to shrink the deficit significantly with his tax increases and spending cuts spurred a run on the franc.
Quickly, Chirac decided that France could not continue muddling toward deficit reduction. The government would pursue austerity even beyond what the financial markets might expect. In light of the government’s low popularity, it is surprising that Chirac thought he could get away with so painful a cure as reining in France’s generous social security system. Taking a page from Newt Gingrich’s book, Juppe announced that he was reforming the health care system in order to save it.
As a simple matter of demographics, France no longer can afford a panoply of social services that includes universal health care, day care, generous retirement benefits, nursing homes, and more. Moderates on the left know this, but organized labor saw itself under attack. For decades now, each of France’s major trade unions has held the right to administer a portion of the welfare state, such as family allocations, health insurance, retirement, and unemployment. This patronage system places the unions — whose membership has dropped to less than 10 percent of the work force — in charge of nearly $ 400 billion and produces enormous waste. Just this autumn, television cameras captured 110 union patronage workers taking off for a health care conference in Bali. Juppe proposes electing the managers of these funds and opening the positions to non-union candidates, with parliament, rather than the unions, setting policy and determining benefits.
Meanwhile, Juppe’s plan to reform pensions and the state-owned railways brought transportation to a standstill on November 24. Given the deficits in the retirement funds, Juppe argued that public-sector workers would have to give up their entitlement to earn, in thirty-seven and one-half years, pensions that private-sector workers had to work forty years to receive. French rail workers can retire at fifty. Not surprisingly, the rail system has two retirees for each active employee and an operating debt of $ 7 billion.
The strike soon spread to the post office, the state-owned electrical utility, and even the national bank. Public workers unabashedly sought to use the strike to maintain the perks that competition and European integration demand be scaled back.
And the public was with them. Polls consistently have shown small majorities supporting the strikers. In this time of economic uncertainty, the average Frenchman is unwilling to forfeit benefits he has come to rely on. The welfare state has co-opted the middle class, too, through early retirement, five weeks” annual vacation, child allowances, and the rest.
If anything, the strike has come to symbolize the cleavage between elites and the people that Chirac so brilliantly exploited in the presidential race. For the past decade, the French have felt as if they were being sacrificed on the altar of European unity, as more and more givebacks were demanded in the name of economic austerity. At the same time, scandals like subsidized housing for the nomenklatura and enormous losses racked up by state-owned banks have left workers feeling that they were being asked to pick up after an incompetent ruling class.
Juppe had expected far less sympathy for the strikers in a season of high unemployment. Still, to his credit, the government’s policy could have fared far worse. Unlike 1968, the strikes have not spread to the private sector.
Nevertheless, with the transportation strike in its third week, Juppe caved to the unions” demand to meet and “find a solution” to the impasse. He also backed off restructuring the national railroads and postponed reform of civil service pensions. He cannot concede on health care, however, without inviting another run on the franc.
Thus, Chirac’s options are limited. Replacing Juppe with either a supply- sider or an opponent of European monetary union might wreak further havoc. The easiest course is to retain Juppe for a bit longer. But should Juppe’s strategy for resolving the crisis fail, his likely successor is 73-year-old Raymond Barre, mayor of Lyons and former prime minister. Barre is widely trusted — and willing to be unpopular.
Chirac, meanwhile, does not face the voters until 2002. That gives him breathing space to “reinvent” himself. For now, monsieur le president de la Republique will likely maintain as low a public profile as possible. But France’s economy — with interest rates high and unemployment and budget deficits spiraling upward — will remain a powderkeg. Chirac will be tempted to take the fateful step of slowing the juggernaut of European monetary union. A devaluation of the franc would boost experts and temporarily reduce unemployment. But that is no lasting solution. Even Euroskeptics know that without the kind of market-oriented structural changes required for monetary union, it will be impossible to sustain the economic growth needed to shoulder France’s untenable social welfare burden.
by Kenneth R. Weinstein; Kenneth R Weinstein is director of research at the New Citizenship Project
