French economy leaps from economic horror to euphoria

Like President Clinton the French Prime Minister, Mr Lionel Jospin, came to office at the tail-end of a particularly bad stretch, and was able to claim credit for an economic recovery that was not entirely of his making.

He has managed the situation well though, privatising more publicly owned companies than any previous government, but without renouncing his commitment to social justice.

Mr Jospin's success has been a vindication, particularly visa-vis Mr Tony Blair. The British Prime Minister's joint liberal economics platform with the German Chancellor, Mr Gerhard Shroder, enraged Jospin socialists, and remarks by Mr Blair's aides about France's "dinosaur socialism" invariably get back to Paris.

Now members of Mr Jospin's government are gloating. During the first 18 months of Mr Blair's and Mr Jospin's premierships, the British economy grew a cumulative 2.7 per cent, while the French economy grew 4.7 per cent. The French bourse is also out-performing other stock markets, with average profits up 50 per cent, compared to 44 per cent elsewhere in Europe.

The French economy has leaped from economic horror to euphoria in just three years. In 1996, French unemployment reached an all-time high of nearly 3.2 million people. During the dreary winter of 1996-1997, the writer Mrs Viviane Forrester's best-selling L'horreur economique became a byword for impotent rage at the predicted end of all employment.

Now the cover of economic monthly Challenges announces triumphantly that "the crisis is over". Over the past 25 months, France has enjoyed the longest ever continuous drop in unemployment, which has reached its lowest level since 1992.

When the finance minister Mr Dominique Strauss-Kahn presents his 2000 budget next Wednesday, he will confirm 38 billion French francs (€5.79 billion) in tax cuts made possible by windfall revenues.

According to statistics released by the French government last week, the number of unemployed in France has fallen by 367,100 since Mr Jospin came to office in June 1997. At 11.2 per cent, France's jobless rate is still one of the highest in Europe, but this is a considerable improvement on the 12.8 per cent of the work force who were unemployed in 1996.

At a recent Socialist Party conference in La Rochelle, Mr Jospin even spoke of "full employment", implying that if he were elected president in 2002 France could reach economic nirvana within a decade. Economists close to Mr Jospin predict that with a future annual growth rate of 3.6 to 3.8 per cent, French unemployment could fall to 7.5 per cent five years from now.

Mr Jospin's advisers may be over-optimistic, but figures are improving. The French economy grew 3.2 per cent in 1998 - "the best year in the decade", as government supporters are quick to point out. Growth is expected to exceed 2.5 per cent this year, and reach 3 per cent in 2000. Gone are the desperate days when Mrs Forrester contended that economic growth destroyed - not created - jobs. The term "job-rich growth" (croissance riche en emplois) has come into fashion. In the past, it was thought that France needed a 2.6 per cent or higher growth rate to generate employment. That estimate has been lowered to 2 per cent because of the expansion of the service sector, the spread of part-time and short-term employment and reductions on the hefty social security charges withheld from French payrolls.

Because job security is a fundamental tenet of French socialism, the government does not readily admit that many of the 750,000 jobs created under Mr Jospin may not last in the long run. Mrs Martine Aubry, the employment minister, is threatening to punish businesses which over-use part-time labour to keep their costs down.

A principal reason for the French turnaround, economists say, is the fall in interest rates, which had been kept high in the early 1990s to defend the franc. Thanks to EMU, cheaper credit has sparked phenomenal rises in car and appliance sales as well as property.

French domestic car sales rose 24.7 per cent in August alone, and more than 2.1 million new cars will be sold in 1999. The French share of the wider European market - 15 million new automobiles this year - has risen to 22.7 per cent. More than 32,000 new housing units were sold in the second trimester. Building contractors will be the chief beneficiaries of Mr StraussKahn's tax cuts, because VAT on home improvements is to fall from 20 per cent to 5 per cent.

The French economy is also benefiting from fresh business investments, expected to increase by 4.2 per cent this year. During the bad years, businessmen put off buying new equipment and infrastructure. Now France is racing to catch up in information technology, which accounts for 5 per cent of GDP and 6 per cent of economic growth.