President Sarkozy is set today to launch his re-election campaign with a TV appearance in which he will declare his candidacy. France's head of state has been behaving erratically for some weeks past but there has not been much doubt that he would present himself as the standard-bearer of the centre-right in the presidential poll, due to take place in two rounds on 22 April and 6 May.
Some of Sarkozy's critics, indeed, would say that erratic behaviour has been characteristic of his presidency. His manner has alienated large swathes of the French electorate who supported him in 2007 in the hope that he would bring painless reform to the economy so as to strengthen France's international competitiveness. In the event, there has been precious little reform and France is visibly flagging as it seeks in vain to stay abreast of Germany in the euro zone.
Initially, France seemed relatively resilient in the global economic downswing of 2008-09 but this was largely a reflection of the expansive fiscal policy that Sarkozy encouraged the government to adopt. The cost of this is now to be seen in a deterioration in French public finances that prompted the Standard & Poor's Corp. to downgrade France's credit standing from AAA to AA+. It seems that many French voters saw this as symbolic of the loss of prestige France had suffered during the Sarkozy years, owing to the poor judgment and inappropriate conduct of the President. It is this, rather than faith in socialist solutions, that has propelled Mr Hollande into a substantial lead over the incumbent in opinion polls.
Admittedly, Mr Sarkozy's standing looks stronger on the assumption that Ms Le Pen fails to gather enough signatures from notables to present herself as a candidate. He and his ministers have recently stepped up their anti-immigrant rhetoric, presumably with a view to picking up some of her support. Though his chances of surviving the first round of voting are brightening, these tactics risk alienating supporters of centrist candidates, to make his defeat all the more certain in the second round.
At the end of last month, Mr Sarkozy had a success to celebrate with the Indian Government's decision to grant an order to the French company, Dassault, to supply it with 125 multi-role combat aircraft worth more than $13bn. France's balance of payments could certainly do with this support. The French current account was in surplus as recently as 2004 but is reckoned by the OECD to have racked up a deficit equivalent to $63bn last year. Over the same period, Germany's current account surplus is estimated to have increased from $125bn to $177bn. In a single currency zone, there is no scope for exchange rate adjustments to correct an imbalance that shows every sign of widening.
Unit labour costs in France have been growing around 1% per annum faster than in Germany. The French government's efforts to shelter its economy from these negative trends, through relatively loose fiscal policies, have been reflected in a rise in the government deficit as a proportion of GDP from around the 3% limit allowed under the euro zone's Stability and Growth Pact in the middle of the last decade, to 7.6% by 2009, before subsiding only slightly to around 6% last year. By comparison, the German government's deficit ratio, which was also around 3% in the mid-2000s, had given way to a surplus by 2007 and was only a shade over 1% in 2011. To stop losing ground to Germany, France would need to make a wrenching adjustment to its fiscal stance. To restore relative positions to what they were in the mid-2000s would oblige French leaders to impose an unrealistic degree of austerity on their fellow-citizens.
Earlier this month (No 3793), we pointed to the emergence of what we called the German plan for the reform of the euro zone. This plan calls on euro zone member-states to initiate policies of economic restructuring, coupled with austerity, to fit them for long-term participation alongside Germany in a single currency area. This represents a rejection of the French demands of a few years ago that Germany handicap its economy so that other member-states can match its pace. In describing this as the German plan, we stressed that support for it was not restricted to Germans.
It finds adherents in other core euro zone states. Further, not all Germans endorse this approach. At the weekend, Ms von der Leyen, the labour minister, pleaded with German employers to grant pay settlements at above-inflation rates this year, a policy that Mme Lagarde had urged on Germany when she was French finance minister. However, Ms von der Leyen's suggestion elicited strongly negative reactions from senior CDU legislators. Mr Schaeuble's increasingly tough line towards Greece is more reliably indicative of the current tendency in German policy. The German drive for euro zone reform is now rolling.
The question for French voters is whether they are willing to see their country take its place among the mini-Germanys of the future euro zone. There is no assurance that Mr Sarkozy would deliver that outcome, though he is more willing than Mr Hollande to consider the steps that would have to be taken to assimilate France to the German economic model. Indeed, Mr Hollande has come out in open opposition to the policies of fiscal austerity that Germany would have hard-pressed countries of the euro zone, which category includes France, adopt without delay. Consequently, if, as currently seems likely, Mr Hollande emerges as victor from the presidential elections, a crisis more serious than all past crises is likely to flare up in the EU.
It is hard to see how a head-on clash between the two leading nations of the EU will then be avoided, unless Mr Hollande surrenders at the first sign of trouble. But France would have allies in resisting the full rigours of the German plan among the other euro zone member-states that have lost competitiveness. Mr Monti, with his call for growth-supporting measures, appears to be positioning himself as a potential mediator in the prospective conflict.
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