Jospin, Fabius feel the heat as election nears

Life is becoming increasingly uncomfortable for Mr Laurent Fabius, France's finance minister.

Life is becoming increasingly uncomfortable for Mr Laurent Fabius, France's finance minister.

As next year's presidential and parliamentary elections begin to dominate the agenda, he is coming under pressure. The prime minister, Mr Lionel Jospin, and his fellow ministers ask the impossible of him: to deal with gloomy economic data without denting consumer confidence or giving the impression that the Socialist-led government can no longer afford to spend and cut taxes freely.

At the same time, Mr Fabius has to fend off criticism from Brussels that France has failed to take advantage of the past four boom years to make the structural adjustments in spending needed to ride out leaner times. The budget deficit looks set to rise this year for the first time since 1993 and next year the picture is unlikely to improve, adding to strains in the euro-zone stability pact.

These conflicting pressures curtail Mr Fabius's room for manoeuvre. He can no longer pretend the downturn in the French economy is a mere temporary trough. The virtuous cycle - of business investment, household confidence and job creation stimulated by public spending - is being undermined by the US slowdown and the weak performance of Germany, France's main trading partner.

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Thus, instead of fighting next year's elections on a record of economic success and constant cuts in unemployment, the government may have to contend with a rise in the jobless and social unrest. France has suddenly found itself alarmingly exposed to external economic events.

Twice in the space of three days last week, Mr Fabius was obliged to revise downwards his growth estimates. First he admitted gross domestic product would "probably" fall below 2.7 per cent this year, then he conceded: "I think growth will be lower than expected, perhaps a little below 2.5 per cent, which means the French will do better than many others in 2001 but not so well as expected."

Even this talking down did not take the sting out of the announcement last Friday by Insee, the official statistics institute, that GDP would grow by no more than 2.3 per cent. This is a full percentage point less than officials forecast last autumn, when the 2001 budget was finalised.

Compared with Germany or Italy, such growth might seem more than respectable. But given the insouciant manner with which the government had once brushed aside the dangers of contagion from the US, Mr Fabius's reassessment is the equivalent of a profits' warning.

Private-sector economists are gloomier still. They reckon GDP may now grow by little more than 2 per cent in 2001. They do not share Mr Fabius's optimism of a rebound next year. Mr Ernest-Antoine Seilliere, head of employers' federation Medef and no friend of the Jospin government, has hammered home the business view. "The year 2001 marks the end of a period of economic well-being when we enjoyed strong growth that created jobs and generated a flow of receipts for the budget and the social security system."

The latest data bear this out. The June survey of French industrial opinion, published last week, showed that expectations fell for the fifth successive month as orders thinned and stocks accumulated. The sharpest drop was in export markets. Job creation, the government's single most important achievement, has stalled since April - indeed, unemployment even rose marginally last month.

The government's parliamentary supporters and its electoral constituency on the left have yet to grasp the implications of these changed economic circumstances. And even when the unwelcome message sinks in, some may not take heed.

Mr Fabius has found himself confronted by an ever-more vociferous left that wants the government to prove its socialist credentials with more social spending and further tax breaks for the lower paid.

After a poor showing in the municipal elections in March, the prime minister feels he must acknowledge these demands. Hence he has made concessions that Mr Fabius has been powerless to block.

Mr Jospin has in effect authorised the institutionalisation of the youth employment scheme he introduced when he took office in 1997. Although intended to be temporary, covering the life of the current legislature until 2002, it has been extended until 2007. It now employs 276,000 people with limited skills aged between 18 and 25 in state and para-state organisations. Mr Jospin did not want to risk the political fall-out from ending the scheme, even though it will add 40 billion French francs (€6.1 billion) to the budgets over the next five years.

Another electoral hand-out has been the granting, as of next year, of two weeks' paternity leave.

Mr Fabius has a glimmer of hope that things could turn favourable again. Consumer demand might come from tax cuts, the 4 per cent rise in the minimum wage as of July and the spending of hoarded francs ahead of the introduction of euro notes and coins.

But, for the first time, the French government can no longer count on that most precious of electoral assets - the "feel-good" factor.