France’s Gloomy Economic Outlook Haunts Presidential Race

Radmila Zakovic, 59, went for benefits at the local unemployment office for herself and her two sons, both jobless. She had told them that if they finished school, they would find careers. “I feel like I’ve lied to my children,” she said.

As President Nicolas Sarkozy contemplates his race for re-election, with the first round of voting 100 days away, he is confronted with an economy reeling from the euro crisis and nearly zero growth. France has just lost its AAA credit rating and must cut government spending. The unemployment rate is 9.9 percent, a 12-year high, and rising.

The loss of the treasured AAA rating, while expected, was a blow to France’s status in Europe, making it seem less like a power than a problem. The downgrade makes it harder for France to pretend to be Germany’s equal in leading the European Union, which the Franco-German partnership has traditionally dominated. That, in turn, will make it harder for France, Italy and Spain to challenge the German recipe of austerity and to press harder for more liberal, pro-growth policies from the European Central Bank.

The downgrade was also a major political blow to Mr. Sarkozy and his prospects in the coming election. Polls show the main concerns of voters are clear: the size of the French debt, the cost of living, unemployment and general economic insecurity. Mr. Sarkozy’s rivals, fairly or not, leave little doubt where to place the blame.

“It is Sarkozy’s politics that have been downgraded, not France,” said François Hollande, the Socialist candidate who leads in the polls. Mr. Sarkozy’s presidency, with higher debt and higher unemployment, has been a disaster, Mr. Hollande said, but he has provided few details about his own plans.

It is hard to see how France can quickly extricate itself from its economic morass. It is Europe’s most centralized, state-dominated economy, and is deeply invested in its opposition to what the French call the Anglo-Saxon economies of Britain and the United States, whose laissez-faire approach they blame for the 2008 financial crisis.

Yet, like Europe’s lagging Mediterranean countries, though to a lesser extent, France is having trouble competing with the larger German economy, which is more flexible, less confrontational in its relations with employees and more solidly built on industry and exports.

While Mr. Sarkozy blames France’s woes on the 2008 global financial shock, the real problem, said Nicolas Baverez, an economist and historian, “is the unsustainable economic and social model of the last three decades.” France, like other European countries, benefited from cheap credit, leading to a society in which nearly two-thirds of the economic growth depended on consumption, partly financed by social transfers. Those, in turn, were financed by public debt that has ballooned to 86 percent of the gross domestic product in 2011 from 20 percent in 1980.

The main criticism of Mr. Sarkozy is that while he promised “a rupture” with the past to modernize France’s heavily state-dominated economy — liberalizing the tax system, eliminating the 35-hour workweek, reducing bureaucracy and improving purchasing power — he has accomplished little in the face of political and union opposition, save for an important delay in the retirement age. The Socialists, if they win, are unlikely to be much braver, altering the edges of tax and social policy, but not the core.

For Mr. Sarkozy and other European leaders, the euro crisis and the heavy sovereign debts that led to it have created a kind of political prison. Normally, faced with high unemployment and stagnant growth, leaders would spend to stimulate the economy, investing in infrastructure, education and job training. Instead, pressed by the markets and his own promises to limit deficits, Mr. Sarkozy has had to cut government spending and raise taxes in an election year.

But France’s efforts to repair its figures — as with the rest of the countries in the euro zone — are “too little, too late,” said François Heisbourg of the Foundation for Strategic Research in Paris.

Elvire Camus, Scott Sayare and Sophie Cohen contributed reporting.

Article source: http://www.nytimes.com/2012/01/16/world/europe/frances-gloomy-economic-outlook-haunts-presidential-race.html?partner=rss&emc=rss