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Playing For All The Marbles In Paris


International Business: FRANCE

PLAYING FOR ALL THE MARBLES IN PARIS

As grumbling Parisians hiked and biked to work past padlocked Metro stations in the early-December chill, a fortnight of public-service strikes was pushing the government of Prime Minister Alain Juppe into a painful dilemma. If Juppe sticks with his plans to cut workers' benefits and raise taxes, the strikes could widen, pushing France--and maybe even all of Europe--into recession. But if Juppe caves, France will never make the budget cuts needed to qualify for monetary union with Germany and other European countries by 1999. Without the participation of France, monetary union will collapse--and so will hopes for a wider European integration.

Thus this French crisis is a moment of truth for all Europe. It's also a moment that Juppe and President Jacques Chirac have long sought to avoid. Deteriorating public finances finally forced Juppe to get tough with France's 5-million-strong state employees (table). Juppe wants to align their retirement plan with that of the private sector, requiring them to work 40 years instead of 37 1/2. Some rail workers now retire as young as age 50 and are strongly resisting change. Juppe also plans to freeze state workers' pay next year and to cut health benefits for all French workers.

But it's even money whether Juppe will successfully resist strikers. His predecessors, notably Edouard Balladur, had a history of yielding to pressure from the streets. Juppe insists he won't do so--even if he has to resign. In an angry speech to parliament on Dec. 5, he announced he'll consult--but not negotiate--with workers who are resisting his planned reforms.

Meanwhile, union leaders are digging in. So far they've offered no alternatives to cutting state deficits--an issue that's obviously low on their agendas. They promise a lengthy, militant strike. "The longer the strike lasts, the greater the demands will become," warns Marc Blondel, the blustery secretary general of one big union, Force Ouvrire. New groups are airing other gripes. Students have marched for higher education budgets. Hospital employees want higher wages, while postal and electricity workers have stayed home to warn against possible privatization.

PRIME MOVER. The strikes are already hurting business in France--and beyond. A lack of trains to carry its cars has forced Peugeot to lay off 1,700 workers at one French plant. Paris department stores say Christmas shoppers are 50% fewer than normal, because of transit strikes. General Motors Corp.'s German unit, Adam Opel, had to eliminate a work shift recently because parts from Spain couldn't cross France. Economists now forecast that the French economy is likely to shrink this quarter and grow by little more than 1% for 1996 vs. 2.4% this year.

Although wracked by problems, France still looms large as Europe's second-largest economy and as a prime mover of European unity. But Paris must muscle through its budget cuts fast. In March, an inter-governmental conference will consider where unity goes from here. If Juppe backs down, the answer will be: nowhere. "France has the keys to monetary union in its hands," says Jurgen Pfister, economist at Germany's Commerzbank.

With the possible exception of Britain's Conservatives--who bear little love for monetary union--most European governments hope Juppe sticks to his deficit-cutting guns. German Chancellor Helmut Kohl is undoubtedly pressuring Chirac to support Juppe. Market rumors suggest the two leaders may cut a deal to fix currency parities leading into monetary union and pledge their central banks to defend them. This would free France to cut rates to prop up its economy without devaluing.

Such a pact would be tough to enforce, however, unless the French reassure the markets by seriously cutting social spending. "France has reached the limits on the problems of 50 years," says French economist Elie Cohen. Europe will learn soon whether Alain Juppe is the man to fix them.

Eight Months to a French Crisis

MAY Alain Juppe is appointed French Prime Minister by President Jacques Chirac, who promises to put job creation ahead of deficit-cutting.

AUGUST With a weakening economy hurting tax revenues, Juppe orders state ministries to cut budgets. But he also fires Alain Madelin, free-market Economics Minister, for suggesting that civil servants' "privileges" be reduced.

SEPTEMBER Juppe declares a freeze on civil servants' pay.

OCTOBER State employees strike for one day to protest the freeze. Later that month, Chirac says deficit-cutting is now the top priority.

NOVEMBER Juppe announces stiff tax hikes and benefit cuts to halve $12 billion in social security deficits. Public employees launch bitter strikes.

DECEMBER Statistics show French economic growth weakening.

DATA: BUSINESS WEEKBy Stewart Toy in Paris, with John Templeman in Bonn and William Glasgall in New York


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