France may yet win wider war on its economy if Hollande acts now

France has lost a battle, but France has not lost the war. So said Charles de Gaulle in June 1940. The downgrading on Friday of France's sovereign debt rating by Standard & Poor's presents President Francois Hollande with an excellent opportunity to prove de Gaulle's point.

In certain respects, France has fought its way quite well through the post-2008 European financial crisis and economic recession. Most of the banking system is stable. The cumulative loss of national economic output is below the eurozone average. Government bond yields are exceptionally low. France boasts world-class companies such as Air Liquide, Danone and L'Oreal that are emerging stronger than ever from the crisis.

All this is a universe away from Greece, and many planets away from Cyprus, Italy, Portugal and Spain.

But in contrast to their peers in the rest of the 17-nation eurozone, France's political leaders have not seized the crisis as a chance to make essential reforms to the state apparatus, the welfare system, the labour market and taxation. S&P put its finger on one of the chief obstacles to reform by highlighting "the government's inability to significantly reduce total government spending".

The deep cuts in state expenditure that have occurred in Ireland and the eurozone's Mediterranean states have not happened in France for two reasons. First, the political establishment is, in its heart and soul, Colbertian: that is to say, it believes, like Jean-Baptiste Colbert, Louis XIV's finance minister, that the state is good, the state is efficient, the state is what makes things tick. Why cut it back, especially if the voters are devoted to it as well?

Second, France's political establishment lives in fear of a great popular revolt if it were ever to attempt far-reaching change. Remember the mass strikes of 1995 against the spending and welfare reforms of Alain Juppe, prime minister under Jacques Chirac, former president? And his proposals represented only 25 per cent of what needed to be done.

Now that a French president is elected only to a five-year term, rather than a seven-year term as under de Gaulle and his first four successors, Mr Hollande is in a bind. After his election victory in May 2012, he could have used his political capital to amass a constituency for reform. Instead he wasted time and his popularity ratings are lower than those for any president in the 55-year Fifth Republic.

He still has a chance. If he fails to take it, the embarrassing gap between France and Germany in terms of economic performance and credibility as a leader of the eurozone will simply yawn wider.

© The Financial Times Limited 2013. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation