Sarkozy’s high-wire economic act

Nicolas Sarkozy has a problem in his battle to preserve France’s triple A credit rating. Neither the voters nor the markets wholly trust him. The French president’s attempts to shore up confidence with cost-saving measures on Monday are unlikely to do the trick, even if they were necessary given the recent sharp slowdown in growth.

Mr Sarkozy did his best by giving the popular prime minister François Fillon the task of announcing the second austerity package in three months. Mr Fillon is never better than when he is playing Père la Rigueur, his stern but reassuring tone popular with anxious voters. A mix of spending cuts and tax rises, the measures aim to ensure that France will cut its deficit to 3 per cent by 2013.

As far as it goes, the package looks likely to achieve its goal without killing off the consumer spending that has long fuelled economic growth. The difficulty of this delicate balancing act should not be underestimated. True, there may be questions over the decision to increase the discounted value added tax on restaurants and home improvements, but the rise seems relatively marginal.

The real problem with these latest measures is that they fail to send a clear and confident signal to markets that France is on the path to structural reforms that will really stimulate longer-term growth – especially as the cuts may have to be revisited if the economy slows yet again. Rightly, the government is cautious about how it cuts spending in the short term. But this should be no impediment to setting out a longer-term vision.

To be fair, the government is accelerating last year’s hard-won pension reform and this is welcome. It is also to Mr Sarkozy’s credit that this latest package attempts to deal with some spending issues – reining in social security and benefit rises along with other measures whose effect will increase over time. But the brake is cautious, and more could be done. There are still too many tax exemptions on pensions that are no longer justified given the progress in eliminating pensioner poverty in recent years. There is also scope to ensure more efficient spending on healthcare or on unemployment benefits.

It might be naive to think that six months before an election any government would set out such goals. Yet Mr Sarkozy was elected in 2007 promising bold change. It may be that, with his popularity at record lows, he would have little to lose and much to gain from taking a more radical approach.