Klaus F. Zimmermann: Ireland may be turning the corner, but would a Hollande-led France drive Europe off course?
THE labour market reform packages recently announced in Italy and Spain were long overdue, but they are setting these countries onto the right track for a more prosperous future. Ireland is also making a lot of the right moves. All of that is to be welcomed as a net plus for all of Europe. Against that backdrop, it is all the more regrettable that France, under a presumable President Hollande, would move in the opposite direction. It would seek to reverse the already timid reforms which Nicolas Sarkozy managed to put through during his term.
If the Socialist Party's candidate for the French Presidency is indeed elected and follows through on his announcements, he risks his country being viewed rather quickly as assuming the mantle of the pre-Mario Monti Italy. Yes, Monsieur Hollande has paid lip service to former German Chancellor Gerhard Schroeder's labor market reforms, which the latter launched well over a decade ago. These measures which Germany implemented have shown that unemployment can be driven down, even amidst a global economic crisis and even in a high labor cost economy.
But Hollande does not seem to grasp that relying on raising taxes even further was precisely not the path chosen by the German Social Democrats, his ideological soul mates. At the core, Mr. Schroeder grasped that the public sector's share of GDP could not be elevated any further for the economy to grow again. Any conservative would have had a much tougher time seeing through
In fact, Germany's Social Democrats launched and executed a gutsy social and economic experiment. They demonstrated that parties on the left could very well do the right thing to restructure and re-dynamize a national economy, by trimming benefits and reducing the state’ role in the economy. If anything, that is the lesson Mr. Hollande should embrace, especially given that the public sector’s share in the French economy is considerably higher than Germany’s. Instead, he is opting for a French special path, claiming in effect that economic laws, as they apply elsewhere, do not do so in France.
That is all the more regrettable as a France moving in the wrong direction, a France that wants to reopen negotiations over the EU's fiscal pact and a France that does not correct its past choices, at a minimum is bound to delay the European reform process. Growth and jobs will arrive commensurably later. At worst, it could threaten to paralyze the ECB, which in many ways now is the true engine of European integration.
Such a turn of events would be doubly regrettable as, in an unprecedented case of cross-border interaction, Nicolas Sarkozy recently embraced the German approach to economic and social affairs on French television. Chancellor Merkel, for her part, is breaking with past protocol, declaring her readiness to campaign with the current French president on helping him get reelected.
Anybody who knows the ups and downs of Franco-German history will recognize that this is a high risk gamble by any means. But in a year where the French and the Germans approach the 50th anniversary of their Treaty of Friendship, the best evidence of the closeness in relations would be if Monsieur Hollande, if elected, rethought his policy path.
Recently, even the World Bank, under the aegis of Bob Zoellick rather a critic of theGerman economic policy, has unequivocally stated that countries such as France are driving up their labor market costs too much in light of an ever shorter numbers of hours worked and the overly generous time off which they provide. In France's case, it goes well beyond an eight-week vacation period. With good reason, the World Bank declares this strategy as not sustainable in a world economy that is marked by ever more cross-border competition.
The worst thing about Mr. Hollande's pronouncements is that they raise expectations in the French population which are likely to be sorely disappointed. For all of his justified criticism of the financial industry, it certainly is not the root of France's lack of competitiveness. And blaming the banks certainly does not make it any more responsible fiscally to bring the retirement age back down to 60 years, as Hollande intends to do.
And if he looked at the choices made by Germany's Social Democrats a good decade ago, he would understand that they did not choose their approach lightly. These reforms were, and some of them still are, wrenchingly painful. But there was no alternative. A high standard of living has to be earned, not just claimed.
For that same reason, in today's Europe, the battle is certainly not over becoming more "German." Saying so betrays a profound misunderstanding of global realities, in particular the competitive pressures emanating from a rapidly integrating global economy.
If one can blame the Germans for one thing, then it is that they have shown the willingness to get off any high horse and that they realized they needed to adapt. The Germans can possibly be described as Europe's most global economy due to their export orientation and the successful labor market reforms. That, in my mind, is the true -- and only relevant -- form of German leadership.
The longer the French wait to get onboard of what is not a German, but a global vision for Europe, the worse certainly for France and the worse as well for all of Europe. But count on the reform-oriented Italian and Spanish governments not to let any future opportunity go unused where they can stress that they are rapidly moving way ahead of France. They have already gained the edge in terms of labor market flexibility and, one would hope, soon enough on economic dynamism.
Leading German economist Klaus F. Zimmermann heads up the IZA, the Institute for the Study of Labour, a research network of over 1,100 labour economists around the world
