Analysis: French will resist reform till things get worse

(Reuters) – “How can you govern a country which has 246 varieties of cheese?” General Charles de Gaulle famously

asked.

His

distant successor as president of France,

who will be elected on Sunday for five years, faces the same puzzle of how to reform a perennially rebellious nation to meet

the economic challenges of the 21st century.

Conservative President Nicolas Sarkozy set out with great energy in 2007

to shake things up but ran out of steam after loosening the 35-hour work week and raising the minimum retirement age to 62

from 60 in the face of massive resistance.

His most recent move has been to reduce labor costs by cutting social

insurance charges on payrolls and raising value-added tax on goods and services instead.

Socialist challenger,

Francois Hollande, hot favorite to sweep Sarkozy from office in Sunday’s decisive runoff, says he will reverse that switch

and sounds disinclined to even try the structural economic reforms advocated by many economists and the European

Union.

“Does anyone really believe that liberalism, privatization, deregulation which led us to where we are today in

the financial crisis will help us get out of this crisis?” Hollande said last week when asked whether he would emulate

measures being taken in Spain and Italy.

“I believe that today the way we can create growth is through

new technologies, through higher education and new energy sources,” he said.

Questioned about proposals by a 2008

panel led by economist Jacques Attali to unleash growth in France, such as opening up regulated professions like taxis and

pharmacies to competition or allowing stores to open on Sundays, Hollande was dismissive.

TOO COMFORTABLE?

The

inconvenient truth is that most of the French are too comfortably off, despite 10 percent unemployment, a flat-lining economy

and a national debt approaching 90 percent of economic output, to countenance radical changes to their way of

life.

While there has been plenty of hand-wringing about de-industrialization and relative economic decline during the

election campaign, particularly in comparison to key neighbor Germany, there is little, if any, sense of urgency.

This is partly

because France has been anaesthetized from the searing bond market pressure that drove Greece, Ireland and Portugal to seek bailouts and Italy and Spain to

undertake draconian austerity measures and structural reforms.

A brief moment of drama when ratings agency Standard

& Poor’s stripped Paris of its triple-A credit rating for the first time in January evaporated when borrowing costs held

steady and other credit watchdogs did not follow suit.

Paris still borrows at historically low rates around 3.1

percent for 10-year bonds, partly because investors assume its fate is tied to Germany’s, but also because it has a rock

solid track record of being able to raise revenue.

Public services work, the country has an ideal geographical

location and a large consumer market, with a well educated workforce and high hourly productivity – just as well, given how

few hours the French work on average.

Another reason for reform-wariness is that successive French governments have

burned their fingers trying to overhaul protective labor laws, the minimum wage, healthcare benefits and an underfunded

pay-as-you-go pension system.

Strikes and mass street demonstrations, with broad public support, defeated attempts to

reform special early retirement regimes for some public employees in 1995 and efforts to create a lower-wage first employment

contract for young people in 2006.

The French, it seems, would rather live with nearly 25 percent youth unemployment

than see the minimum wage or rigid job protection for incumbent workers eroded. And many are unwilling to see any connection

between the two.

CLOSET REFORMER?

Some of Hollande’s economic advisers, speaking under cover of anonymity to

avoid embarrassing the candidate in the final days of a tense campaign, say he would be more of a reformer as president than

he dares say to get elected.

The Socialist would offer trade unions a grand bargain of seats in corporate boardrooms

and more consultation in government in exchange for cooperation in reforming the pension system and accepting necessary

public spending curbs, they say.

Whether France’s weak and divided unions, steeped in a tradition of confrontational

labor relations, are ready to share such responsibility remains to be seen.

Hollande’s main hope is the CFDT, the

second-largest union confederation, which has long favored negotiated reform over strikes, but is overshadowed by the larger,

Communist-led CGT and sometimes outflanked by smaller but more radical unions.

Sarkozy made a brief effort to

negotiate on pension reform with the unions but ended up imposing it top-down against mass protests. He has spent much of the

campaign denouncing the unions, especially the CGT, as “intermediate bodies” that distort the will of the French

people.

If he were re-elected, France could well see a “third round” of the presidential election in the streets later

this year, as frustrated unions protest against his plan to force retrained unemployed people take the first vacancy they are

offered.

The tens of thousands of activists who flocked to rallies of Communist-backed hard left candidate Jean-Luc

Melenchon are a warning of the resistance any president may face if he tries to roll back what most French people consider

their social rights.

The “Nixon to China” theory of politics suggests Hollande might have a better chance of

achieving incremental reform of the welfare state and labor markets than Sarkozy, because he may face less militant

opposition from the unions.

After all, some of his economic advisers say, between 1997 and 2002 Socialist Lionel

Jospin opened more state enterprises to private capital than any conservative prime minister.

Hollande has said he

will immediately launch a European negotiation on measures to revive economic growth if elected next Sunday. He has also said

he will call an immediate audit of public finances.

That could give him political cover to make public spending cuts

due to a worse-than-expected inherited fiscal and economic position, and agree to pursue some structural reforms in a

compromise with Germany on a European growth pact.

(Editing by Catherine Evans)