Both internally and internationally, the economic impact of France's upheaval might be of more lasting importance than the political. The Fifth Republic—and, indeed, even De Gaulle —may survive, but no matter what course events take it seems certain that France's economy is in for a long ordeal. The general workers' strike sapped French industry of more than $100 million a day in output—and this at a time when it was already showing signs of stagnation. France's growth rate, which climbed above 7% in the early 1960s, last year ebbed to 3.75%. The De Gaulle government had high hopes of increasing the figure to at least 5% in 1968. Now France will be lucky to achieve real growth of 4% in the entire year.
Still more cause for concern is the likely inflationary impact of any settlement. The package negotiated by Premier Georges Pompidou—and rejected by most of the nation's striking workers —included an increase in the minimum wage from 440 to 600 an hour, a 10% general pay increase for all workers in private industry, a 40-hour week (v. an average 46.3 hours now), and improved social security medical benefits. That settlement would cost at least a total of $3 billion, but the strikers wanted more.
Special Taxes. Whatever they finally get, the cost will certainly aggravate French industry's already tight profit squeeze. The workers were largely justified in their demands, since their wages lag behind those in every other Common Market country except Italy. But despite its relatively low payrolls, French industry, plagued by inefficiencies in production and distribution, has yielded slender profit margins. State-owned Renault, for example, earns less than a 1% return on sales, compared with 5% for West Germany's Volkswagen. Compagnie Francaise des Petroles works on a 4.5% profit margin v. 8.6% for Royal Dutch/Shell.
To keep profits from vanishing altogether, any wage hike of the magnitude demanded by France's workers must be followed by a round of price increases. Higher price tags on French goods, together with a big increase in consumer income, would swell imports and cut exports at a time when the country has already run into balance of payments difficulties. The French payments surplus, which amounted to $286 million in 1966, dwindled to nothing last year; even before the crisis, France was expecting to run a slight deficit this year.
France's payments position stands to get an additional jolt on July 1, when the Common Market is due to abolish all remaining tariffs on trade between member nations. At the same time, the Market is scheduled to introduce uniform external tariffs, which will promptly be reduced in accordance with Kennedy Round agreements. This figures to hurt France, since it presently enjoys some of the highest tariff levels of any of the six Common Market members. Elimination of all tariffs within the Market, meanwhile, will completely open French borders to the goods of such powerful trading partners as West Germany and Italy—which, in view of the current situation, leads to fears that France may try to maintain its tariffs past next month's deadline.