Sarkozy’s Last Stand

By Charles C. W. Cooke

Saturday, April 21, 2012

Few countries in the world offer a political canvas as eccentric as France’s. There are ten candidates on the ballot for this Sunday’s presidential election: Six of them are socialists of one stripe or another, one is an avowed Communist, and another represents the openly racist and generally execrable Front National. The remaining two are centrists in that peculiarly French way; only one of them has a shot, and he will, in all likelihood, lose.

About Sunday’s election, it is difficult to conclude anything other than that Nicolas Sarkozy’s days as premier are numbered. He and his leading foe, François Hollande, have left the remaining contenders behind, but M. Sarkozy is trailing in head-to-head polls by an average of 15 points, meaning he will almost certainly be beaten in a run-off. This will be a shame, for the end of his tenure will be the end of France’s brief flirtation with economic reform.

The election of the front-runner, François Hollande, the candidate of the left-wing Parti Socialiste, would perhaps represent a return to the France of old — and at a time when the country, crippled with debt and subject to the ill fortunes of the euro, cannot afford to make any mistakes. Although it is sometimes difficult to tell which of M. Hollande’s policies are serious and which are the product of spontaneous overexcitement — the candidate has an intriguing habit of making things up on the spot, leaving his team floundering — his is a platform whose philosophical home is on the hard left.

At the Paris International Agricultural Show earlier in the year, M. Hollande told journalists that the top income-tax rate should be 75 percent, levied at the €1 million mark. “It is not possible to have that level of income,” he argued emphatically, before adding a characteristic shrug: “How can we accept it?” For good measure, he also pledged to tax at 45 percent — up from today’s 41 percent rate — those earning more than €150,000 a year.

If these promises are fulfilled, it will do serious damage to the incumbent president’s hard-won reforms. Sarkozy promised a “rupture” with the past when he took office in 2007. He introduced €29 billion of tax breaks into the code and, lamenting that many of France’s celebrities and entrepreneurs lived abroad, attempted to seduce them back into the country with the imposition of a “tax shield” that capped the total amount any individual could pay in income taxes at 50 percent of their income.

And with the help of a rare majority in parliament in 2008, M. Sarkozy pushed through the controversial “loi de modernisation de l’économie,” which eased up France’s notoriously difficult business climate. The law made it easier to start companies, dramatically reduced the involvement of the state in setting retail prices, removed regulations that prevented employees from working more than a set number of hours (35 in most industries), and removed taxes on income earned in overtime.

Defending (some of) his reforms and fighting for his political life, M. Sarkozy has accused M. Hollande of “appalling amateurism” and contended that his extreme prescriptions are, at worst, a recipe for economic disaster and, at best, a publicity stunt. He has a point, since a French-senate study from 2009 shows that only 0.01 percent of taxpayers have a yearly income of €1 million, meaning just 3,523 households would be affected by the 75 percent rate proposed by his opponent. (One could, perhaps, regard the proposition as a Gallic Buffett Rule.)

Some might be tempted to ask, “So what?” But it is worth remembering that one of the reasons so few French taxpayers would be affected by a tax aimed at millionaires is that similar existing policies have already driven high earners out of the country in droves. Adding to the number of its productive expats is something that France can ill afford.

M. Sarkozy is no Mrs. Thatcher, and in an American context he would struggle to win election even in our most liberal states. He retreated significantly from his reforming zeal after the financial crisis hit in 2008, announcing in September of that year that “laissez-faire capitalism is over” and denouncing the “dictatorship of the market.” He even responded to the charges of his right-of-center critics by rhetorically musing, “Have I become socialist? Perhaps.” (Although this may have been shrewd political triangulation more than a case of genuine realignment.) Compared to his opponent, however, he is Milton Friedman.

This year’s election is in part a referendum on the president’s reforms, and in part another installation of the perennial debate about redistribution versus growth. M. Sarkozy has argued repeatedly that France could quite easily start to resemble moribund Spain if it adopts the “socialism” of its southern neighbor. This is a warning worth heeding. M. Hollande wants, in addition to his tax pledges, a minimum-wage increase, which he claims will give the economy “a little push to catch up what hasn’t been done in the past.” Sarkozy vehemently opposes such a move, warning on Europe 1 radio recently that “everyone in France is aware of what’s happening to Spain. It’s the result of seven years of socialism with the same policies that M. Hollande is promoting.”

President Sarkozy’s fears for France are well founded. Although he beat M. Hollande’s then-wife Segolene Royale in the presidential election of 2007, the Parti Socialist won most regional and local elections that year, and in 2011 it took control of the Senate. Should François Hollande win the election, making Nicolas Sarkozy the first one-term French president since 1981, he will have a clear opportunity to undo much of what the president has achieved at home and abroad. France’s economy has not turned around in the way that the president had hoped. Fundamentally, though, his ideas are sound, and they lean in the right direction. If France is to weather the economic storm that still rages, it will be better off under Nicolas Sarkozy than under François Hollande.