Jacques Chirac and the Economy: A Troubled Relationship and Mixed Results

1995: good political intuition but economic misunderstanding

Finally reaching the top job in May 1995, Jacques Chirac was immediately confronted with a dilemma. His social and political intuition had led him to campaign on the themes of social divide and purchasing power, with the now famous formula "Pay slips are not the enemy of employment" ("la feuille de paye n’est pas l’ennemi de l’emploi"). If the political diagnosis was correct – his electoral victory being the supreme judge of that – France's economic issues were superbly ignored by the new President. Having accepted the monetary union with Germany in the 1992 referendum on the Maastricht Treaty, which Chirac had courageously supported, France’s economic policy should have focused on competitiveness, since devaluations were no longer an option. But whether it was wage policy, for which the French expected an increase, or competition policy, a breeding ground for private innovation but still frowned upon in a country with a strong Colbertist tradition, both teams at the Elysée and Matignon (Prime Minister’s office) went in the opposite direction. On the contrary across the border, Germany, whose competitiveness had collapsed after reunification, had begun to recover, through wage moderation, the unwinding of companies’ cross-shareholdings boosting investment and innovation, and the launch of structural reforms of the labour market.
 
Faced with the 3% of GDP deficit rule to qualify for monetary union, Chirac entrusted Alain Juppé with the task of restoring public finances. Besides a reasonable reform of health insurance, an attempt was made to tackle pensions’ special regimes, which the unions seized upon to blow up the whole thing. Analysts such as Stéphane Rozès explained that strikes at the end of 1995, despite literally bringing the country to a standstill, enjoyed popular support as "strikes by proxy". The contradiction between electoral promises on social divide and wages, going back to an era of a closed economy and fuelled by the illusionary return of the "Glorious Thirties" and the reality of France's economic environment bears a heavy responsibility from my point of view.

The 1997 political maneuver and its impact on competitiveness

Without the global economic upturn that had favoured him in 1986-87, President Chirac concluded that the Juppé government, in spite of its competencies, would not succeed in qualifying his country for the euro.

But, if the euro was successfully launched, the consequences of this political maneuver would prove to be disastrous, leading to a reduction in working hours and an increase in labour costs, thus a loss of competitiveness, partly offset by exemptions to employer contributions, which in turn increased public expenditure. This time around, the economic upturn – it always eventually comes – did not favour the President, but instead his Prime Minister: strong global growth between 1998 and 2000 created the perception that unemployment could be tackled by imposing reduced working hours. Benefiting from large tax revenues, the Jospin government inferred from it an urgency to stall reforms to the pension system, in spite of an ambitious proposal detailed in Jean-Michel Charpin's report that could have given rise to a wide French-style large scale pension fund. So many lost opportunities during this seven-year mandate!

The failure of incremental reform

Having been re-elected with a crushing score against Jean-Marie Le Pen in 2002, Jacques Chirac seemed to have learned from his political successes and economic failures: to only enact incremental reforms, in a country convinced that, in any case, "liberalism does not work" to reproduce another one of his formulas. It became a motto for the Raffarin government, resulting in concrete but slim outcomes. The final reform attempt, to introduce a more flexible employment contract for young people for future recruitment, stemmed from good intentions but was doomed to fail. Such was also the case with an earlier attempt by Edouard Balladur to establish a "Youth Minimum Wage” due to the widespread and immediate perception of this reform as stigmatizing a group of the population. Rather than a fundamental reform of the labour market, Chirac’s strategy of incremental reform was a failure, contributing to a strengthened idea among the population that reforms are synonymous with social regression.
 
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What will remain from Jacques Chirac's economic policies? Courageous decisions when the economy was on the brink of disaster alongside a failure to enact structural reforms, due to his lacking a clear perception of modern economic realities. Outside from the strict economic frame, we shall also remember that the man of the nationalist "Call from Cochin" (the hospital where he was treated after a car accident in 1978), condemning the "party from abroad", became a strong supporter of the European idea, against several of his allies and despite his knowledge that Europe was not a winning electoral theme. For that, we should be grateful to him.

Copyright : PATRICK KOVARIK / AFP