June 6, 1997
The Doomsayers Are Wrong
By NORBERT WALTER
FRANKFURT -- With 11 of 15 European governments now led by Socialists or
other social democrats, European voters seem to be united in resisting
tough economic medicine à la Margaret Thatcher. The trend toward
privatization, vital to Europe's ability to wean itself from dependence on
the public sector, appears to have hit a wall, at least in France.
Even more serious, according to the conventional wisdom in the wake of the
French election, the plan for a common European currency by 1999 now looks
shakier.
Lionel Jospin, France's new Prime Minister, has suggested that he may take
his time in meeting the established timetable.
But these gloomy predictions make sense only if you believe the campaign
promises of the French Socialists. I would argue that it is more important
now to watch their actions, rather than listen to their rhetoric.
More than ever before, count on the word Bundesbank to become a dirty word
in French politics.
This will allow the French Socialists to deflect their frustrations onto
the other side of the Rhine in one fell swoop. After all, France's
willingness since the early 1980's to follow, in the spirit of European
integration, the German central bank's lead in raising interest rates is
clearly a factor in the nation's 12.8 percent unemployment rate.
About the best thing the Germans could do now is let the Bundesbank become
the whipping boy of French politics. It would be a small price for Germany
to pay to keep its French partner in the boat at this precarious stage of
European integration.
Nobody should forget that it was the French Socialists, under the
leadership of François Mitterrand, who cleaned up the country's economy as
best they could between 1982 and 1995.
If Mr. Jospin throws a wrench into the motor of European integration by not
staying the course on monetary union, he might be charged with abandoning
the Mitterrand legacy. But Mr. Jospin rose through the party ranks as Mr.
Mitterrand's right-hand man. He is unlikely to turn his back on his
mentor's historic achievements.
Yet Mr. Jospin seems to have violated the standard of the new European
left, as exemplified by Britain's new Prime Minister, Tony Blair.
Throughout his campaign, Mr. Blair carefully avoided making promises he
would have trouble keeping. By contrast, Mr. Jospin created a dangerous
trap for himself by promising 350,000 new public-sector jobs. President
Jacques Chirac of France also pledged to reduce unemployment during his
election campaign in 1995. His failure to accomplish that led French voters
to throw out the conservatives.
Can Mr. Jospin save his own neck? For one thing, he should benefit from a
somewhat improved market for French exports. Even if he does not create
more jobs, he may be able to take credit for at least holding the line on
job losses -- no mean feat under present circumstances. He should take to
heart the recent agreement by the German chemical workers union to allow
more flexibility on wages.
Mr. Jospin's knack for connecting with voters -- like President Clinton, he
is a skilled practitioner of the "I feel your pain" political style -- will
also help him. Indeed, he played this role during Mr. Mitterrand's tenure,
helping to preserve the emotional appeal of the old workers' party while
Mr. Mitterrand put the French economy on a tough monetary course.
But what if my scenario of French self-restraint proves to be merely
wishful thinking? A potent safeguard built into the system will induce the
French to stay on course. If the Socialists really try to fulfill their
campaign promises, embarking yet again on a futile effort to create even
more public-sector jobs, the financial markets will likely drive up
interest rates on French bonds, weakening economic activity and making
existing debt more expensive to service. In the worst case, they would
restore the risk premium on interest rates that France worked so hard to
get rid of in the 1980's.
Europe is at a true crossroads. Voters in France and the other countries
that have put the left back in government may not fully recognize this, but
the French Socialist leaders do. They know full well that one fork in the
road leads toward integration, while the other would end up in a
nationalist brouhaha. They understand that European integration is far too
delicate for individual countries to try to reinvent the Maastricht Treaty.
That is why the new French Government is unlikely to stray too far from the
prescribed path. It will offer sympathetic assurances to its citizens, but
it will press ahead with the inevitable task of economic reform.
Norbert Walter is chief economist of the Deutsche Bank Group.
Copyright 1997 The New York Times Company
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