KEY POINTS:
After four decades in politics, Jacques Chirac will leave a dismal economic legacy.
The French President, who announced this week that he will not seek re-election, led a weakened and demoralised country that is in need of drastic measures.
Almost alone among Europe's conservative leaders, he showed little
interest in economics or business. As a result, he allowed the debate to be dominated by socialists.
That can be seen in slow growth, high taxes, crippling unemployment, and a hysterical reaction to globalisation. Unless his successor can turn that around, it is hard to see a healthy future for the French economy.
"Chirac, of course, has not been an enthusiast for structural change in the French economy, preferring to stick to the traditional line that the moral defects of the free market make it impossible for France ever to adopt that system," said Stephen Lewis, chief economist at Insinger de Beaufort Holdings SA in London.
There is little satisfaction to be drawn from any survey of Chirac's 12 years in power. He may have had some successes in foreign policy: most countries probably wish they had thought a bit longer about sending troops to Iraq. Yet the persistent failure of the economy has left France rightly nervous about its prospects.
All the verdicts are damning. "Which economy is going to wear the 'sick man of Europe' shirt now?" asked Morgan Stanley chief European economist Eric Chaney in a recent note to investors. "Among the larger euro-area economies, the answer is in my view unambiguous: it is France."
Other European countries are performing better under the same conditions, say economists Patrick Artus, Elie Cohen and Jean Pisani-Ferry.
"Too few French producers are able to compete on quantity or quality, and they have been too timid in reaching out to the new areas of growth in the world," they said in a report for the Centre for European Reform in London. "For a decade, this problem was hidden, initially by the weakness of the euro, and subsequently by the temporary loss of German com-petitiveness. But today it is clearlyvisible."
Spot on. A weak euro gave France a temporary boost. So did the anaemia of the German economy. Now that the euro is strong again, and Germany has put itself on the road to recovery, France looks painfully exposed.
France is losing its share of world markets. The trade deficit swelled to €29.2 billion last year from €22.9 billion a year earlier. The economy grew 2 per cent last year, lower than the euro area's expansion of 2.6 per cent. And France's unemployment rate of 8.5 per cent in January was still among the region's highest.
Chirac must take responsibility for that record. He never bothered to stand up for business and push through free-market changes. Even the 35-hour week remains in place five years after the Socialist Government that created it left office.
In France, there are virtually no pro-business, pro-market voices left. Most of the country isn't even hearing any serious analysis of what is wrong.
The Socialist presidential candidate, Segolene Royal, argues for yet more public spending and fines for firms that move jobs abroad. Her conservative opponent isn't much better. Nicolas Sarkozy is reduced to attacking hedge funds, and calling for a European tax on "speculative movements".
Both candidates should be offering labour-market programmes, lower taxes, and deregulation. Neither is proposing enough to make a difference.
France needs to embrace de-industrialisation, as Britain did more than a decade ago. It must start understanding that globalisation is an opportunity, not a threat: such a highly educated nation should be revelling in the money to be made from free trade. Instead, it is afraid and resentful.
Chirac's legacy is a country that has forgotten how to compete in the global economy, and is reduced to railing against the modern world. Meanwhile, the best and brightest young French people hop on the train to London to make their careers there. It would be hard to think of a more telling indictment of a leader.
- BLOOMBERG
