Tuesday, November 20, 2007

Sarkozy's Thatcher Moment

I have been bashing Sarkozy quite a lot here, mostly for his monetary policy statements. However, I have also said that despite his statist leanings on monetary policy and some other issues, he was still a lesser evil compared to the other candidate in the presidential election, Segolene Royal. And so, he does in fact push for some positive reforms.

One of these reforms are the plans to reduce the overly generous pension benefits of many government employees, that allows them to retire with full benefits after working 37.5 years, a period which Sarkozy wants to increase to 40 years. This will help reduce France's all too high level of government spending and increase the supply of labor.

Of course, the reform is too modest and affects too few people to have a really dramatic positive effect on the French economy. But now that it like previous reforms pursued by Chirac is being challenged by strikes organized by the unions, it is vital for France that Sarkozy does not surrender, like Chrirac did on several occasions. If these modest reforms cannot be implemented then of course, anything more radical or just equally radical will be ruled out in the future too.

So, Sarkozy now faces a choice. Either he like Chirac,and Edward Heath in Britain in the mid-1970s surrenders surrenders to the strikers and dooms France to continued stagnation. Or he decides to play tough and demand unconditional surrender from the strikers, like Margaret Thatcher did in the early 1980s. That would not only mean that the modest improvements now proposed will be implemented, but more importantly it will also help clear the way for further free market reforms.


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