Why Thatcherism won’t work in France

Stagnant growth. Persistently high levels of unemployment. Levels of state spending that are starting to make Cuba look like a free-market paradise. A growing trade deficit, restrictive labour laws, and vast swathes of declining rust-belt industries. It is no great surprise that many people look at France today and conclude that it looks a lot like Britain in the 1970s and decide that what it needs is a Gallic version of Margaret Thatcher to shake it out of economic decline.

Now they may have their man. In the primaries to choose the centre-right candidate for next year's presidential election, the former prime minister, Franois Fillon, took an unexpected early lead. A staunch admirer of Thatcher, Fillon campaigned on a platform of bracing free-market reforms and at least a chunk of the electorate appear to have liked what they heard.

Like Thatcher before him, Fillon wants to slim down the state, take on restrictive labour laws, such as the 35-hour week and early retirement ages, and unleash some entrepreneurial energy to restore growth and create new jobs. Fillon's problem, however, is this: it is justnot going to work. That is not just because he will face opposition fromthe unions, although he will. It is because it is virtually impossible tomake structural reforms in an economy that is gripped by deflation.

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Rewind to 1980s Britain, which Fillon holds up as a role model. With its privatisation of state industries, cuts to government spending and dismantling of trade-union power, what became known as Thatcherism was a tough set of reforms, and there were lots of hard-fought battles to push those changes through. They were successful in the medium-term but there was a lot of short-term pain beforehand.

The point that is often forgotten is this: those reforms were made against a backdrop of rising demand. The Tories in the 1980s started out with budget cuts and a deep recession in 1981-1982. But after that, as inflation came under control, real interest rates were steadily falling for most of the decade and that fuelled an expansion of spending.

At the same time, the development of North Sea oil led to a windfall of tax revenues amounting to tens of billions of pounds. That enabled the government to cut taxes far faster than it otherwise could have done. Overall, the economy was being constantly stimulated and, even so, it was still hard to make structural reforms.

France has nothing like that going for it. Interest rates are already close to zero, and in some cases negative. The European Central Bank has been printing money like crazy for the past year, and can hardly do much more. France is stuck with an over-valued currency, for its own needs at least, which shifts demand to Germany. It has plenty of shale gas, but has so far shown zero interest in developing it. The backdrop is constantly deflationary, and it is impossible to see where any significant stimulus to demand is going to come from. Against that, structural reform is hopeless.

Going into the election next year, Fillon's real problem will be promising the impossible. That only makes it more likely that National Front leader Marine Le Pen will be the eventual winner. Most of her policies are toxic but at least they are realistic. France has little chance of reviving its economy so long as it remains a member of a single currency that is steadily ripping the heart out of its industrial base. Thatcherism plus control of its own currency would work but unfortunately that is not what is on offer.