Pardon my French about the French

SYNOPSIS: The French are unable to seriously look at unemployment, and will never solve it their way.

       Fifteen years ago, just after François Mitterrand became president of France, I attended my first conference in Paris. I can't remember a thing about the conference itself, although my impressions of the food and wine--this was my first adult visit to the city--remain vivid. The only thing I do remember is a conversation over dinner (canard aux olives) with an adviser to the new government, who explained its plan to stimulate the economy with public spending while raising wages and maintaining a strong franc.
       To the Americans present this program sounded a bit, well, inconsistent. Wouldn't it, we asked him, be a recipe for a balance of payments crisis (which duly materialized a few months later)? "That's the trouble with you Anglo-Saxon economists--you're too wrapped up in your theories. You need to adopt a historical point of view." Some of us did, in fact, know a little history. Wasn't the plan eerily reminiscent of the failed program of Leon Blum's 1936 government? "Oh no, what we are doing is completely unprecedented."

The French have no monopoly on intellectual pretensions or on muddled thinking. They may not even be more likely than other people to combine the two. There is, however, something special about the way the French political class discusses economics. In no other advanced country is the elite so willing to let fine phrases overrule hard thinking, to reject the lessons of experience in favor of delusions of grandeur.
       To an Anglo-Saxon economist, France's current problems do not seem particularly mysterious. Jobs in France are like apartments in New York City: Those who provide them are subject to detailed regulation by a government that is very solicitous of their occupants. A French employer must pay his workers well and provide generous benefits, and it is almost as hard to fire those workers as it is to evict a New York tenant. New York's pro-tenant policies have produced very good deals for some people, but they have also made it very hard for newcomers to find a place to live. France's policies have produced nice work if you can get it. But many people, especially the young, can't get it. And, given the generosity of unemployment benefits, many don't even try.

True, some problems are easy to diagnose but hard to deal with. If George Pataki can't end rent control, why should we expect Jacques Chirac to be able to cure Eurosclerosis? But what is mysterious about France is that as far as one can tell, absolutely nobody of consequence accepts the obvious diagnosis. On the contrary, there seems to be an emerging consensus that what France needs is--guess what?--more regulation. Socialist leader Lionel Jospin's idea of a pro-employment policy is to require employers to pay workers the same money for fewer hours--an idea that was popular with voters, the recent election results would suggest. Even conservative Phillipe Seguin, regarded as an iconoclast by French standards because he has questioned the sacred goal of European monetary union, thinks that one way to add jobs is to ban self-service pumps at gas stations.
       Beyond more of the same, what does the French elite see as the answer to the nation's problems? For more than a decade its members have sought salvation in the idea of Europe--that is, a unified European economy (under French leadership, of course), with common regulations and a common currency. In such a continental market, they imagine, France can once again prosper.

Now a unified European market is a pretty good idea. There is even a reasonable case for unifying Europe's currencies--although there is also a good case for doing no such thing. (There is a whole industry of people--Eurologists?--who make a living by debating that issue.) But to acknowledge the potential virtues of European economic integration risks missing the essential fatuousness of the whole project. France's problem is unemployment (currently almost 13 percent). Nothing else is even remotely as important. And whatever a unified market and a common currency may or may not achieve, they will do almost nothing to create jobs.
       Think of it this way: Imagine that several cities, all suffering housing shortages because of rent control, agree to make it easier for landlords in one city to own buildings in another. This is not a bad idea. It might even slightly increase the supply of apartments. But it is not going to get at the heart of the problem. Yet all the grand schemes for European integration amount to no more than that.

Indeed, in practice, the dream of European unity has actually made things worse. If you are going to have a common currency, everything we know suggests you should follow what Berkeley's Barry Eichengreen calls the Nike strategy. But instead of just doing it, European nations agreed to a seven-year transition period during which they would be required to meet a complex set of criteria--mainly to reduce their budget deficits while keeping their currencies strong.
       There is nothing wrong with balancing your budget. In fact, European nations need to do some serious fiscal housecleaning. And as the happy experience of America under Bill Clinton has shown, it is quite possible to reduce the deficit and increase employment at the same time. All you need to do is cut interest rates, so that private spending takes up the slack. But you can't cut interest rates if you are obliged to keep your currency strong. So the Maastricht Treaty (the blueprint for European currency union) ensured that the budget-cutting it required would be all pain and no gain. Nobody can make a precise estimate, but a guess is that without Maastricht, France might have an unemployment rate of 10 percent or 11 percent. Not great, but a couple of points better than now.

While some French politicians have been willing to say nice things about budget deficits, nobody seems willing to challenge the dogma that European integration is the answer. Even Seguin the iconoclast declares that "the fight against unemployment is inseparable from the realization of the grand European design."
       But let us not blame French politicians. Their inanities only reflect the broader tone of economic debate in a nation prepared to blame its problems on everything but the obvious causes. France, say its best-selling authors and most popular talking heads, is the victim of globalization--although adroit use of red tape has held imports from low-wage countries to a level far below that in the United States (or Britain, where the unemployment rate is now only half that of France). France, they say, is the victim of savage, unrestrained capitalism--although it has the largest government and the smallest private sector of any large advanced country. France, they say, is the victim of currency speculators, whose ravages President Chirac once likened to those of AIDS.

The refusal of the French elite to face up to what looks like reality to the rest of us may doom the very European dreams that have sustained the nation's illusions. After this last election it is clear that the French will not be willing to submit to serious fiscal discipline. Will the Germans still be willing to give up their beloved deutsche mark in favor of a currency partly managed by France? It is equally clear that France will not give up its taste for regulation--indeed, it will surely try to impose that taste on its more market-oriented neighbors, especially Britain. That will give those neighbors--yes, even Tony Blair--plenty of reason to hesitate before forming a closer European Union.
       But if it turns out that Chirac's political debacle is the beginning of a much larger disaster--the collapse of the whole vision of European glory that has obsessed France for so long--we can be sure of one thing: The French will blame it all on someone else.