TCS Daily


Winds of Reform Blowing Through France

By Jurgen Reinhoudt - July 23, 2007 12:00 AM

Though no reforms have been passed into law by the French Parliament (yet), all signs in France are pointing towards a significant philosophical change at the top.

Those yearning for economic reforms in France resemble Fox Mulder, the fictive FBI agent investigating mysterious phenomena in the TV series "The X-Files." On Mulder's wall hangs a large poster with the words "I want to believe." Those with an interest in reforming European welfare states tend to feel the same way when they hear European political leaders speak of reform. Well aware that so many attempts at reform have fizzled in France in recent years, advocates of reform have become excessively cautious in tempering their hopes.

Moreover, sometimes leaders who talk of reform don't really mean it, or don't carry through when push comes to shove. Think of Jacques Chirac, whose early rhetoric seemed so promising, or Berlusconi in Italy, whose center-right talk was not matched by far-reaching economic reforms. Think even, for the time being, of Germany's leader Angela Merkel, who has yet to engage in fundamental reforms resembling those of her center-left predecessor. Yet sometimes, those who talk of economic reform really do mean it—think of Thatcher or, Aznar and Schroeder. And when reformers carry through, the results are true success stories.

In France, Sarkozy's victory has given hope to reformers. So far, all indications are that at least one key component of his promises—a significant package of tax cuts—is set to be passed into law.

Yet what matters is not as much the tax cut package but the change in attitudes that Sarkozy brings to the table.

Yes, Sarkozy is a protectionist and not averse to industrial engineering when it suits France's national interests. Yes, he would like to put political pressure on the European Central Bank to bring interest rates down to lower the Euro's value against the dollar. But in this, he is not so different from many other French politicians.

Unlike swaths of French politicians, however, Sarkozy dares to say that the French status quo is not sustainable—that France has much to learn from countries such as the U.K. and, with regard to flexible labor laws, Scandinavian countries. As he writes in his political manifesto, Testimony: "I'm convinced that... France—notwithstanding its undeniable merits and prestigious past—will become a thing of the past if it doesn't take the steps necessary to adapt to the changes taking place in the world."

This fundamental change of attitude is rubbing off—in a positive sense—on Sarkozy's team of Ministers. Sarkozy's Finance Minister, Christine Lagarde, could not have been more blunt when she told Parliament, assembled on July 10 to discuss a 10 billion Euro per year tax cut package, that "France is a country that thinks. There is hardly an ideology we don't have a theory on. That's why I would like to tell you: that's enough thinking, enough prevaricating. Let's just roll up our sleeves."

In another highly unusual move in French politics, Lagarde spoke in clear, practical language to illustrate the unsustainability of France's fiscal regime. Commenting on the French bankers who work in London in droves for fiscal reasons, she told MPs: "All you have to do is go to Gare du Nord on Friday night to Eurostar and Thalys arrivals to understand that these French bankers, who have gone to work in the city, those tax exiles in Belgium, want one thing, to come back to France."

And in a truly remarkable move, Lagarde extensively quoted Tocqueville on the inherent moral worth of work:

"work is a natural thing, necessary for man to lead a balanced life, indispensable to the individual to form himself and develop his potential to the fullest. It is not an alienation..."

Lagarde said that the key part of the reform package, making overtime work for workers tax-free, would cost about 6 billion Euros per year, while cutting the top tax rate from 60 to 50% would cost about 600 million per year. Following the speech, as a Socialist MP fumed in the hallways of Parliament that these are "fiscal presents to the privileged few, to the 13,000 richest families of France," one thing was clear: winds of change are blowing in France, seeking to revitalize an economy weakened by decades of socialist policies pursued by the left and the right.

Let's hope that this time, winds of reform will blow away the old way of doing politics. It's time to unshackle France's productive French potential: as in Tocqueville's time, France could flourish once again. It's time to roll up the sleeves.

Jurgen Reinhoudt is a Research Assistant at the American Enterprise Institute.

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