Jospin shifts responsibility for reforms to old rival

When Mr Lionel Jospin announced a cabinet reshuffle on March 27th, he promised to continue the reforms that led to the downfall of his first government and said the country was "in a new situation".

This week is widely viewed as the test of those assertions, but the common wisdom here is that reform is not advancing and nothing has changed.

But clever politician that he is, the Prime Minister has managed to shift responsibility to his old rival and new Finance Minister, Mr Laurent Fabius. A dispute among Socialist parliamentarians on a draft law on stock options, the week-long debate in the National Assembly on the law on "New Economic Regulations" (known as the NRE) and a revised 2000 budget have all focused attention on Mr Fabius. His credibility is at stake, French newspapers keep reporting, and they are giving him low marks.

Over the past 15 months, the debate on stock options - when business executives buy shares in their own companies at preferential rates and sell them at a profit - has taken on the irrationality of a religious war. Public opinion was outraged last summer when it was revealed that an oil executive received nearly £20 million in stock options when his company was bought out.

The war moved to the heart of the French left, dividing Blairist liberals like Mr Fabius from communists, greens and more traditional Socialists. The liberals argued that without competitive compensation, French executives would go abroad. For the left of the left, it became a moral issue. Stock options favour those already in the highest salary bracket and deepen social inequality, they responded.

Mr Henri Emmanuelli, the Socialist president of the National Assembly's finance commission, defied his Socialist colleague Mr Fabius by insisting that stock options be heavily taxed. Yesterday, Mr Emmanuelli's morality won over Mr Fabius's reforming zeal. The draft law adopted by the Socialist parliamentary group raises taxation on profits of more than 1 million francs to 50 per cent, compared to 40 per cent until now. The only concession won by Mr Fabius is that holders of stock options can now sell them after four years instead of five.

The law on New Economic Regulations, which Mr Fabius is defending in the National Assembly, is a cumbersome text with more than 600 proposed amendments. And it was drafted by his predecessors, Dominique Strauss-Kahn and Christian Sautter.

The NRE is meant to curb what the French call "savage capitalism" by regulating stock market operations, wholesale grocery distributors and business management. The right-wing deputy Mr Alain Madelin called it "a hodge-podge of measures scraped from the bottom of a drawer in the finance ministry". Voting on the text will be on May 2nd.

Meanwhile, the cabinet yesterday approved a corrected budget for this year. That Mr Strauss-Kahn had under-estimated government revenues by £6.17 billion is a measure of the chaos that confronts Mr Fabius at the finance ministry.