Sarkozy targets industrial policy

According to Nicolas Sarkozy, naivety is out and reciprocity is in. Speaking at the Paris Air Show, a huge aviation trade event, on Sunday (24 July), Sarkozy repeated his call for a ‘genuine EU industrial policy’ that would allow the bloc the ‘freedom of interpretation’ to give rival economies such as the US, China, India and Brazil as good as it gets.

Sarkozy’s desire to see a wised-up EU apply reciprocity in its dealings with the rest of the world may have seemed compelling. But, it would be gullible to believe that his vision of an integrated EU industrial policy goes much beyond straitjacketing the European Central Bank (ECB).

Sarkozy’s vision of an integrated EU industrial policy is unlikely to extend beyond his desire to dismantle the inflation-oriented mandate of the ECB. Taking orders at the show, an annual fixture for the aviation industry, was ailing Franco-German planemaker Airbus, a self-proclaimed victim of the ECB’s interest rate policy, a company that Sarkozy has said cannot be allowed to fail.

The setting for the bold rhetoric was therefore fitting, but Sarkozy did not necessarily convince. "I’m not impressed," says Eric Chaney, chief economist for Europe at investment bank Morgan Stanley. "I don’t think there is a lot of reality behind his call for an EU industrial policy. It is something that works at company level, but not at political level."

According to Chaney, Sarkozy’s euro-pragmatism, at least in the industrial sense, would appear to have more to do with a fixation on domestic employment policy than with a glorious new industrial age for Europe. The French president’s pre-election pledge to halve unemployment to an ambitious 5% or step down after his first mandate was unprecedented. "I have never heard any politician making such a pledge on unemployment, with a figure," says Chaney.

With 3,200 French jobs at risk under Airbus’s painful Power 8 restructuring program, set to be finalised in September, steering the ECB’s mandate to place the euro at the service of EU exporters may be just the tonic the French economy needs. "Sarkozy drew lessons from the French reaction to the constitution and wants to appear as someone fighting for these types of things at EU level," says Chaney. "That is why, on top of structural reforms, the government will do anything possible to protect jobs and create jobs."

Reforms aimed at strengthening the French labour market are to be announced at the beginning of next month by new French Finance Minister Christine Lagarde. Tax cuts amounting to a total of €11 billion will include the exemption of overtime hours from income tax and employer contributions, and income tax exemptions for workers aged below 26 earning up to 11 times the minimum wage.

All this fits in with Sarkozy’s promises to undertake reforms needed to get France back to work. Tackling the controversial 35-hour week, one of the deep structural reforms needed to kick-start the French economy, will be the central theme of the new government’s pro-business agenda. So far, so revolutionary, but sceptics question how much of a difference Sarkozy will make at EU level. "He’s a reformer at national level, but at EU level he’s not a lot different to [former French president Jacques] Chirac," says Sebastian Kurpas, a research fellow at the Centre for European Policy Studies, a Brussels-based think-tank.

Kurpas believes that Sarkozy "will not hesitate to step in for French interests, even if not in line with EU competition policy". His interventionist tendencies were already evident when, as finance minister in 2004, he orchestrated the bail-out of troubled engineering firm Alstom.

Last week’s moves to remove ‘undistorted competition’ as an objective from the draft EU reform treaty leave yet more question-marks hanging over Sarkozy willingness to forgo protectionism in the interests of the common EU good.

According to Nicolas Sarkozy, naivety is out and reciprocity is in. Speaking at the Paris Air Show, a huge aviation trade event, on Sunday (24 July), Sarkozy repeated his call for a ‘genuine EU industrial policy’ that would allow the bloc the ‘freedom of interpretation’ to give rival economies such as the US, China, India and Brazil as good as it gets.

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