The Summer Of Sarkozy

Few politicians in France, or indeed the world, have had a rise and fall as dramatic as that of Nicolas Sarkozy. After soundly winning the presidency last year, he had an approval rating in September of 57 percent—a 30-year French record for a new president—and then a record low of 32 percent just eight months later. Through it all, there was this pervasive sense, particularly among English-language commentators, that Sarkozy's tenure was already on the verge of failure, that his reform agenda had crashed just as it had begun to take flight—that France, ultimately, was hopeless.

Sarkozy himself all but invited much of the criticism, upending the traditional style of the French presidency during a tumultuous first year, when he moved quickly and very publicly from one glamorous wife to another. But lost amid the spectacle was a simple fact: in one year he had initiated more economic reforms than predecessor Jacques Chirac did in his 12-year presidency. Last summer, he appointed a commission led by Jacques Attali to devise ways "to liberate growth," and in January it came back with 316 measures on things like immigration, harnessing the digital age and tightening public spending—and Sarkozy responded. "The fact that half the reforms we gave have been launched is very, very good," says Attali. "But the easiest has been done."

Now, with his poll numbers near their bottom, Sarkozy is actually speeding up the pace, and in some instances fighting against his own party and his core constituents. Many of the tougher reforms are now moving toward completion this summer in part of the biggest surge of economic reform Europe has seen since Margaret Thatcher transformed Britain in the 1980s. Last week, he launched an overhaul of the nation's military, rationalizing the bloated defense budget by cutting 54,000 posts and mothballing dozens of military bases. This month, Parliament passed a bill to make it easier to hire and fire contract workers and salaried employees.

In July Parliament is expected to pass Sarkozy's economic modernization bill (already approved by the lower house), which would boost entrepreneurship and lift old laws that protect small shops, spurring competition in the food and retail industries and lowering consumer prices. Next month, Parliament is also expected to pass a law that allows individual firms to negotiate overtime hours with their employees—a deathblow to the old 35-hour workweek. Still on tap for the next several months: a change that would allow bureaucrats to move from one government department to another, an increase in the number of job cuts in the public service (through attrition) and a set of changes to a health-care system laden with chronic deficits.

Sarkozy, to be sure, is no Thatcher, and France is no 1980s Britain, which was mired in strikes and stagflation. Last year, the French economy grew 2.1 percent. Unemployment, now at 7.2 percent, has fallen steadily since 2005 and union workers comprise a mere 8 percent of the workplace. Yet France consistently punches below its weight, trailing Germany and Britain economically, and though Sarkozy lacks Thatcher's single-minded focus on economic liberalism, he knows that by removing the rigidities in the labor market, cutting taxes and rewarding work, he can spark far greater growth and help keep France competitive in the global economy. It's about "putting into action what economists, on the left and right alike, have wanted for years," says Michel Didier, head of the economic institute COE-Rexecode.

With no key elections on the horizon, now is the time. And Sarkozy has recalibrated his image, reprivatizing his private life, dropping the habit of verbally provoking European peers, silencing loose cannon advisers and generally preparing France for a serious summer of reform. Economists like Didier are taking notice, suggesting growth nearing 3 percent is possible, which could one day move France ahead of Germany, the United States and Britain. Better still, says Didier, Sarkozy's method just might get it done without the kind of social upheaval France experienced in the past: "It's the big bang without the social explosion."

For close Sarkozy watchers, the attempt at this kind of reform should come as no surprise. The surprise is that it did not come sooner. In his 2007 book "Testimony," Sarkozy recalls how he first spoke of "la rupture"—a clean break—at a Union for a Popular Movement (UMP) party meeting in 2005. That clean break would have many facets, including transforming France's relationship with Israel versus the Arab world, making universities more competitive and modernizing the economy. But underlying it all was the idea that the country needed to be shocked out of its longstanding complacency. "The word 'change' had lost its significance because reforms were never followed up," he wrote, "and the word 'reform' itself has become meaningless because it was overused."

In his view, the biggest mistake would-be reformers made, in France and elsewhere, was to undertake reforms sequentially. The problem, he says, is that this stirs up interest groups but doesn't provoke enough support from economic liberals and modernizers. "You often end up stopping at the second reform, exhausted by the battles over the first." The better way is to bundle reforms together and do them as quickly as possible.

These are not new ideas—New Zealand's controversial Finance Minister Roger Douglas has championed precisely that strategy for years and helped transform his nation in the mid-'80s. Benjamin Netanyahu has said Douglas's strategy inspired him when he became Israel's Finance minister in 2003. But the approach is revolutionary for modern France, and it is what defines Sarkozy against his onetime political mentor, Chirac, who believed that French society is so reluctant to change that any reforms must be done carefully to avoid upsetting things.

Sarkozy's all-at-once reform method has already proved to be politically savvy. It splits longstanding loyalties, atomizes opposition and plays interests off one another while providing smoke screens for new reforms. In May, the government's announcement of public-sector job cuts put teachers in the streets. But their movement was deflated when a second reform was announced that would force schools to supervise children when the teachers went on strike. This move toward "minimum service" pitted millions of teachers against many more millions of parents. Guess who is most likely to win?

In other cases, Sarkozy's administration is fast-tracking reforms through Parliament in numbers so great, the opposition can't keep up. The unions complain "it's like releasing a pack of rabbits in front of hunters—you don't know which to target," says Gaël Sliman, a pollster at BVA. The approach has baffled and, to some extent, neutered the unions, which in 1995 staged anti-reform protests so large, they shut the nation down for weeks. In fact, Sarkozy's political maneuvering has created so much infighting among the unions they can't even agree on how to demonstrate. Last week, unions called for 1 million demonstrators to protest. They drew just half that.

The failure to mount a more spectacular protest is one sign that the time is right for Sarkozy's reforms. Another is the subtle shift in the attitude of the French, who seem to have realized that the entitlements given to small, motivated special interests are holding the nation hostage. The 2005 debate over the EU constitution spurred introspection about France's role in a globalized world. Now, rising food and fuel prices are forcing people to wonder if something needs to change. In April, Sarkozy introduced his economic modernization bill, which would gut a 1990s law prohibiting big chain retailers from using their size to negotiate lower prices for consumers and from opening a store larger than 300 square meters without permission from nearby merchants. The result was that hard discounters like Germany's Aldi found it virtually impossible to expand, and prices stayed unnecessarily high. In the past, changing that law would have been nearly impossible, but now "people are so squeezed by the current boom in oil price that they want everything else to give them purchasing power," argues economist Jacques Delpla.

Also helping Sarkozy is the fact that there is little credible opposition. Early in his term, he poached some of the most talented Socialist politicians. He sent modernizer Dominique Strauss-Kahn to Washington, D.C., by helping to install him as head of the International Monetary Fund. Then he folded into his government the perennially popular Bernard Kouchner as Foreign minister. Last month Ségolène Royal, his Socialist opponent in last year's election, clashed with Paris Mayor Bertrand Delanoë over whether a socialist could also be a liberal. Such navel-gazing will continue, at least until Royal, Delanoë or someone else takes over the party leadership in November.

Still, there are hazards in Sarkozy's idiosyncratic methods. Fomenting union infighting makes Sarkozy look clever now, but humiliating the more liberal members might come back to haunt him, or at least slow reform. He is also prone to launching trial balloons he can't rein in. In January, he suddenly announced public television would no longer sell advertising space—at a cost of €1.2 billion. Such moves set back a country that has promised Brussels it will balance its budget by 2012. And though he talks of economic reform, he is far from an economic liberal, demonstrating time and again a willingness to intervene on behalf of companies he deems vital to French interests. This month, for instance, France took a direct stake in Aker Yards France, a shipyard, to protect French jobs.

This lack of ideology can pass for pragmatism, but it can also blur his message. "It was supposed to be la rupture and, to some extent, in some areas it is," says David Spector, an economist at the Paris School of Economics. "In others, it's Chirac-like demagoguery of the worse kind." But ultimately Sarkozy is discovering what economists have known for years: the recipe for starting to reform the French economy isn't as difficult as one might think—but finishing it might be.