Can New French President Deliver? : He Vows to Tackle Joblessness Malaise

Jacques Chirac had a promise for everyone as he ran for the French presidency. He vowed he would reduce unemployment, increase wages, lower taxes, encourage entrepreneurs, help society’s castoffs, keep the franc strong and cut the national deficit.

Now that he has won and taken office, giving conservatives control of the presidency for the first time in 14 years, the question is: Can he deliver?

“As a good politician, Chirac managed to espouse every policy you could think of during the campaign,” said Paul Horne, chief international economist in the Paris office of Smith Barney. “Now we’re waiting to find out what he’ll do. Our big fear is that he will try to do something radical.”

No one here doubts that Chirac, the conservative who formally succeeded Socialist President Francois Mitterrand on Wednesday, plans to move quickly to reduce the French jobless rate, at 12.2% the highest of any of the world’s leading industrial nations. In his first words as president-elect, Chirac declared unemployment the most important crisis facing his government and promised “a new approach,” though he cited no specifics.

The underlying cause of France’s high jobless rate is a rigid labor market in which the incentive to hire more workers has been undermined by the difficulty of laying off unneeded workers later. Most economists believe Chirac needs to make it easier for businesses to hire and fire, increasing their flexibility and, hence, their competitiveness.

But that is likely to generate plenty of opposition from the country’s powerful unions and from those who share the fundamental French belief that the state is responsible for making sure everyone has a job suited to his or her abilities.

The issue of unemployment touches nearly every household in France, where 3.2 million of the country’s 58 million people are out of work. That and recent strikes by workers demanding better pay have led to a widespread malaise, which Chirac’s campaign effectively tapped.

In fact, though, on nearly every other major front, the French economy has been recovering steadily since 1993, when conservatives wrested control of Parliament from the Socialists.

The gross domestic product grew 2.7% in 1994 and should rise by 3% this year, economists say. Inflation last year was 1.7%, one of the lowest in the European Union. And exports in France, the world’s fourth-largest exporter, are expected to hit record levels this year, despite the strong franc.

The recent strikes reflect growing demands for a piece of that recovery. Nearly every major business in the country posted a profit last year. Business investment rose 5.5% last year and a similar rise is forecast for this year.

Chirac was deep in consultations this week as he began forming his new government, enjoying what may be a short honeymoon. The Paris Bourse has risen since his election, suggesting confidence in his free-market ideas and in his promises to continue privatizing state firms. But economists are looking for more concrete signs.

Economists are heartened by Chirac’s selection Wednesday of Alain Juppe, the highly respected 49-year-old foreign affairs minister, as the new prime minister. Juppe, who was a junior finance minister for two years in the 1980s, has a reputation in the business community as a prudent manager who can carry out Chirac’s policies without frightening investors. But much will depend on how free Juppe is to govern the country.

For American companies operating here, the climate remains favorable. Labor costs declined this year and are expected to rise only 1% in the coming year and 2% in 1996. And American companies also have been getting a currency boost with the conversion of strong francs into dollars.

While investors clearly feel positive about the economy, the average French citizen does not. Consumer spending rose just 1.6% last year, though a 2.4% increase is forecast by Smith Barney for this year. And the savings rate is high, at 13% more than twice the rate of consumers in, for example, the United States. That reflects, says one economist, a “fear of firing.”

As president for the next seven years, Chirac clearly has the tools to make significant changes.

Chirac’s Challenge

France’s new president, conservative Jacques Chirac, has declared that reducing unemployment--which has escalated in the past five years--is his most important challenge. He has also vowed to lower taxes and increase wages in a country whose gross domestic product has risen since 1990. In his economic policy making, the president will have to plan for a rise in inflation expected this year. France’s exports are expected to hit record levels in 1995.

Unemployment GDP

In percent: (1995) 11.8% In trillions of dollars: (1995) $1.27*

Inflation

In percent: (1995) 2.4%*

Exports

In billions of dollars: (1995) $230.6*

*

* Projected

Sources: Bank of America, Datastream, International Monetary Fund

Researched by JENNIFER OLDHAM / Los Angeles Times