Nine out of ten

Mar 1st 2005
From the Economist Intelligence Unit's ViewsWire

Among the priorities for France's new finance minister—its ninth in ten years—will be repairing the damage to the government's reputation done by the resignation of his predecessor, tackling unemployment and shrinking the budget deficit.

NO, "NINE out of ten" is not the grade awarded to Hervé Gaymard, who stepped down as France’s finance minister on February 25th, just three months after taking over the role. Nor is it an assessment of Mr Gaymard’s handling of the row about his state-funded flat that prompted his decision to quit. In fact, nine is the number of finance ministers France has had over the past ten years, including the latest, Thierry Breton, who was sworn in on February 28th. Mr Breton’s first priority will be to repair the damage done to the government’s reputation by Mr Gaymard’s departure. His other tasks are more familiar—reducing the budget deficit, curb unemployment and fend off trade-union opposition to the government’s privatisation plans.

It’s worth noting that Mr Gaymard did nothing illegal in having the state foot the bill for the €14,000-a-month apartment he had rented for himself, his wife and their eight children. The problem was that only a few days before the existence of the flat was reported by an investigative newspaper, Le Canard Enchainé, Mr Gaymard had appeared on television saying that voters needed to "wean" themselves off public spending. Aware of how the revelation would play with voters, Mr Gaymard immediately moved out of the flat. In his defence, he claimed the issue would not have arisen had he been the son of rich bourgeois and not of a shoe repairman, and implied he was a man of only modest means. However, when it subsequently emerged that he owned a total of five properties, including an apartment in Paris that he was renting out, his fate was sealed.

The uproar over Mr Gaymard's apartment is a big embarrassment for the government of the prime minister, Jean-Pierre Raffarin, which is already deeply unpopular with French voters. The government’s difficulties can be traced back to the heat wave of August 2003 when, despite a mounting death toll, ministers were thought unwilling to interrupt their holidays to return to Paris and take charge of the crisis. Ever since then, Mr Raffarin has struggled to regain the trust of voters against a background of rising unemployment, weak public finances and a series of unpopular (if necessary) reforms.

Although Mr Gaymard’s resignation will not help the government’s cause, it probably won’t result in lasting damage. He had not really had a chance to make his mark on the government in his three months as finance minister, and was not well known. He also resigned of his own volition, which should help minimise the damage. But the affair could serve to increase the already strong perception among French voters that politicians care more about feathering their own nests than they do about addressing voters’ concerns. Of course, such feelings are not unique to France, but they do find expression in a high level of support for the far-right Front National, which mixes its xenophobia with a populist message that seeks to portray mainstream politicians as corrupt.

Equally damaging could be the lack of continuity at the finance ministry. France has now had four finance ministers since the last election in 2002. Compare this with the situation in Germany, where the finance minister, Hans Eichel, has been in office for six years, or in Britain, where Gordon Brown is approaching his eighth anniversary as chancellor of the exchequer.

In recent years the post of French finance minister has become something of a poisoned chalice, as a succession of ministers have struggled to balance President Jacques Chirac’s election pledge to cut income taxes by 30% over his five-year term with the obligation to cut the budget deficit below the 3% of GDP limit set by the Maastricht treaty. Indeed, it is widely suspected that Mr Chirac’s decision to give the post to Nicolas Sarkozy in March last year was motivated by a desire to clip the wings of a possible future rival for the presidency. As things turned out, Mr Sarkozy managed to use the finance ministry as a springboard for his own political ambitions, winning the election as leader of the ruling UMP party last November.

The result of this procession of finance ministers has been a lack of strategic continuity. France has not run a budget surplus since the early 1970s, and despite repeated promises from several finance ministers to tackle the problem, France’s partners in the euro area could be forgiven for failing to give much credence to the latest target from the latest finance minister in Paris.

The Raffarin government has, however, managed to implement some important reforms. These include an overhaul of the pension and health-care systems, and most recently modifications to the law that limits the working week to 35 hours. Indeed, one could argue that in pushing ahead with such unpopular measures, the government has become the victim of its own political courage; history will probably be kinder to the Raffarin administration than its reputation today would suggest. But none of these reforms has been the responsibility of the finance ministry.

Over to you, Mr Breton

Will Mr Breton fare any better? Certainly he arrives with good credentials, having acquired a reputation as a corporate rescue specialist following spells at Bull, a state-owned technology company; at Thomson, a consumer-electronics group; and latterly as chief executive of France Télécom. He had been touted as a possible candidate to replace Mr Sarkozy as finance minister last November, but the president instead chose Mr Gaymard, who was at the time seen as someone more pliant to Mr Chirac’s message. Mr Breton is likely to prove more of his own man.

The new minister will nonetheless have his work cut out. Although he has political experience (having worked with Mr Raffarin in regional government between 1988 and 1992), he has no strong base within the governing party. Like his predecessors he must find a way to deliver on Mr Chirac’s electoral promises while avoiding an outright confrontation with France’s partners in the euro area. Although Mr Sarkozy managed to delay the latest round of tax cuts planned for this year, France is still on course to breach the 3% of GDP deficit limit for the fifth year running in 2005.

Aside from managing the public finances, the government's economic priority in 2005 will be to make further headway with its privatisation programme, including stakes in the two state-owned energy utilities, Electricité de France and Gaz de France. Moves to reduce the state's holdings in the two companies have been politically controversial. Given his background in part-privatised public-sector companies, Mr Breton could be well-placed to push the sales through. However, he will need to display considerable political nous to overcome deep-seated resistance from the trade unions.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.