The Wages of Success

On paper, Lionel Jospin's first 33 months in office look like a stunning success. Since taking over in 1997, France's Socialist Prime Minister has overseen a dramatic turnaround in the country's economic fortunes: unemployment has dropped from 12.3% to 10.3%, growth has shot up to a healthy 3%, the Paris stock market racked up a record-breaking 50% gain in 1999, corporate profits are soaring.

So why is Jospin facing the worst political challenge of his term? For weeks, pundits and politicians on the left and right have wondered aloud whether he was running out of gas or losing his "grip on power." After pushing through a series of bold social and economic measures--including a controversial 35-hour workweek, legal recognition of unmarried couples and a law to promote parity between male and female political candidates--the government hit a brick wall in its attempts to trim the country's bloated civil service and reform its inefficient education and tax-collection systems. Meanwhile, the opposition scuttled a vaunted reform of the judicial system, Jospin made a terrible faux pas in the Middle East last month by referring to Lebanon's anti-Israeli Hizballah as "terrorists," and his attempts to shepherd a negotiated solution with Corsican nationalists have only sown confusion.

But Jospin's current woes were brought to a head by, of all things, an excess of good news. Last week, Finance Minister Christian Sautter confirmed that the government was headed for a $7.5 billion tax revenue surplus this year, following a $4.5 billion windfall in 1999. The extra funds were generated by France's booming economy, but the government managed to turn this jackpot into a public relations disaster by hesitating to reveal it and providing no plan for putting the unexpected treasure to good use. Moreover, the news hit the headlines just as the French learned they are the industrial world's most heavily-taxed population, with total levies claiming 45.6% of gdp.

"The government's handling of the 'jackpot' issue was a grave communications error," says Jacques Attali, a former adviser to President Franois Mitterrand. "There was all this talk about rising prosperity, but most ordinary people see no difference in their own lives and it created enormous dissatisfaction. So when they hear about this windfall they say, 'Great, build us new swimming pools and give us jobs.'"

Indeed, the announcement touched off a veritable feeding frenzy as unions and other special interest groups demanded more jobs and increased social spending, business leaders sought reductions in corporate charges, and taxpayers of every stripe wanted their money back. As Jospin's message of fiscal restraint gave way to feverish expectations, his plans to freeze public sector hiring and streamline state institutions were undermined.

Last Thursday, after 200,000 teachers, parents and students demonstrated nationwide against proposed educational reforms, and some 20,000 striking tax agents hit the streets to denounce an attempt to reform their creaky, Napoleonic-era collection system, Jospin went on TV to calm the public and reassert his authority. Saying he would "prefer to see people feverish over growth than sick with depression," he announced a series of measures aimed primarily at reassuring his own disgruntled electorate on the left. The bulk of the windfall, $6 billion, will be used to fund various tax cuts aimed mainly at low wage earners. Jospin also promised $1.5 billion in new spending mainly for hospitals, education, and depressed urban areas.

Even as Jospin emptied this bag of goodies--pundits instantly dubbed him Santa Claus--he said nothing about reducing the country's $23 billion budget deficit or its $777 billion national debt. Nor did he outline his long-awaited plan to save the country's pension system, which is expected to face a critical demographic crunch by 2015. Jospin promised to unveil a pension reform scheme this week, but indicated that he had no intention of swapping the egalitarian pay-as-you-go system for one based on private pension funds. As for his much-touted plans to modernize and restructure state institutions, Jospin backed away from the bitterly contested education and tax-collection reforms, leaving both Education Minister Claude Allgre and Finance Minister Sautter in a virtually untenable position.

Jospin's announcements were good politics at least in the short run, since they aimed to shore up his support among two major leftist constituencies: the poor and the civil servants. But they hardly make good economic sense. Buffeted by the current numbers--and by breathless recent news accounts about France's "revolutionary" economic rebound--Jospin boasted to TV viewers that "France is considered by observers as the economic locomotive of Europe." What he neglected to say was that both the European Commission and the European Central Bank have warned that the country must give more urgent priority to deficit reduction.

In a front-page article last week, the influential daily Le Monde noted that France actually led Europe in only one economic category--its crushing tax burden--and that its performance in most other areas was only average compared to its E.U. partners. Gallic pride also took a hit last week when figures issued by the E.U.'s statistical office showed that France has just been surpassed by the UK as the world's fourth-biggest economy, after the U.S., Japan and Germany. So while the indicators look good--and current predictions point to strong 3.4-3.8% growth this year--France is hardly an economic superpower, and Jospin would be mistaken to overestimate the political dividends of the recovery. "Jospin's problem now," says political consultant Bernard Rideau, "is the transformation of his image. Before, people saw him as brilliant and rigorous, but close to them. Now he seems more like a technocrat locked in an ivory tower."

During the two years leading up to the presidential elections, in which he is likely to challenge Gaullist President Jacques Chirac, Jospin will have to show direction, movement and leadership in addition to economic results. That means he must make progress on promised reforms--including the politically volatile pension and institutional reforms--and begin to attack the problems of structural unemployment.

The loss of his right-hand man, former Finance Minister Dominique Strauss-Kahn (forced to resign in the face of a fraud investigation), will handicap Jospin in coming months, as will the discrediting of Allgre and Sautter and the mayoral ambitions of cabinet stalwarts like Labor Minister Martine Aubry and Justice Minister Elisabeth Guigou. Increasingly isolated within his own government, Jospin may find that the easy part is behind him. But with the latest polls showing Chirac leading 53% to 47% in the presidential horse race, Jospin has no choice but to pick up the pace.

With reporting by Sarah Davis/Paris