Does Sarkozy mean business?

On May 16, Nicolas Sarkozy was sworn in as France's new president. The unprecedented turnout suggests a desire for change in a country blighted by economic inertia. Sarkozy has promised things will change, but can he deliver?

by FT; Sunday Times; PlusNews
Last Updated: 23 Jul 2013

Like all self-respecting reformers, Sarkozy came in with a number of pledges for his first 100 days in office. High on his hit-list are reforms of the labour market and the economy.

France has Europe's third largest economy but its growth rate is one of the lowest in the EU at a tepid 2% in 2006, just ahead of Portugal. It also suffers from chronic unemployment (8.3%, one of the highest rates in Europe), particularly among young people (22% for under 25s). Public debt is also spiralling uncontrollably, having reached 64% of GDP.

First to go under the Sarkozy knife is the 35-hour week: the new president wants the French to work more and plans to cut taxes on overtime pay and drastically reduce the much reviled corporate tax. Wealthy individuals are also likely to benefit from a €50,000 tax break if they invest the money into a small business. Such reforms are unlikely to do much good to the budget deficit but they might give the economy a jump-start.

For all his reformist zeal, Sarkozy's track record is peppered with the interventionist tendencies so common in French politics. He notably rescued ailing engineering group Alstom in 2003, pledged he would never let Gaz de France be privatised and has said that French industries and their 'champions' should be protected from délocalisation - that evil by-product of globalisation - at all costs.

It is likely that Sarkozy will benefit from a parliamentary majority after June's legislative elections, in which case France is likely to undergo significant economic reforms with a number of new laws. Investors are keeping a close watch - Sarkozy could very well give with one hand and take away with the other.

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