Wed, May 25, 2005 - Page 9 News List

The French wobble on EU treaty as economic fears hit home

By William Keegan  /  THE OBSERVER , LONDON

At the beginning of last month, opinion in France had shifted within a couple of months from being in favor of the proposed European Constitutional Treaty to being against. France of all countries, the historical driving force behind the EU!

In recent weeks the mood has altered several times but, with only a week to go until next Sunday's referendum, the Chirac government still faces powerful opposition, and there is much speculation about the consequences of a "no" vote.

It would be a quintessentially Gallic result if the "yes" campaign managed to scrape a decimal point or so above 50 percent -- and very reminiscent of the French referendum on Maastricht.

In my opinion, the economic troubles now worrying the French electorate were fomented by the restrictive economic policies adopted in the run-up to the Maastricht Treaty and the policy regime since then. For though referendums are supposed to be about a single issue (and historically they are seen as such) they are the occasion for all manner of protests about sources of discontent with governments and individual leaders, and the performance of the French economy, not least its high unemployment rate, has featured prominently in recent debates.

Last week, even as British Chancellor of the Exchequer Gordon Brown admitted to the Confederation of British Industry that his confident forecasts of economic growth would be affected by downward revisions to forecasts of growth in the eurozone, Le Figaro was proclaiming: "The British miracle should serve us as an example, provided we have the courage to cross the Channel and seek answers ... to the anaemia of our economy."

Yes, the grass is always greener on the other side of the Channel. I wish I had Le Figaro's confidence in the durability of the British economic miracle: there have been disturbing echoes recently of the "miracle" that Lord Lawson thought he had worked here in the late 1980s. Then as now we heard a lot about the flexibility of the British labor market after all those Thatcherite reforms that essentially amounted to strengthening the hand of employers against the employed. But that flexibility was not much consolation when disastrous macroeconomic policies brought us recession in the early 1990s.

Of course, pace Figaro, you do not need courage to cross the Channel or take a train beneath it. London is teeming with French waiters escaping the high unemployment in France. Indeed, they add a touch of class to the rather dubious standards we take for granted in our so-called "service economy."

But to return to the French economy. The great hope of the French during the work on the Delors report of the 1980s and the Maastricht Treaty was that the outcome would be an expansionary European economic policy, providing some insulation (as far as was possible) from the vagaries of a world economy dominated by the US.

What the French and the rest of the eurozone ended up with was subjection to a European Central Bank that seems to think Weimar inflation lurks just around the corner, plus fiscal rules that did not take account of the lessons of economic history and economic cycles -- rules which have recently had to be stretched, inevitably, but whose framework was, and is, fundamentally inimical to the kind of "dash for growth" that is required when unemployment is chronically high.

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