by Philip Short
Reagan was no economist either, but at least he had the good sense to do what his advisers told him. Mitterrand did not. His Prime Minister, Pierre Mauroy, was no more an economist than he was, but he was a solid northerner and had his feet on the ground. Although he never opposed the President publicly, he made no secret of his reservations in private. ‘We’ve got off to a very bad start,’ he said two months after Mitterrand’s election. ‘If it goes on like this, we’ll end up with them throwing rotten tomatoes at us as we leave.’
The few who understood clearly the gravity of the crisis were either, like Jacques Delors and Michel Rocard, not in the President’s camp – which meant that he preferred not to listen to them – or, like Delors’s deputy, Laurent Fabius, so determined to keep Mitterrand’s favour that they backed his policies regardless. In November that year, when Delors called for a ‘pause’ in the reforms, Mitterrand was furious and insisted that he retract. Rocard blamed himself later for not having spoken out more strongly. ‘Mitterrand,’ he wrote, was ‘purely political, allergic to economic and financial arguments. [He] believed that everything depended on pulling strings and political will. [It was] lunacy!’
The recession, deeper and more enduring than had been predicted by the optimistic forecasts both of French government analysts and of the OECD (Organisation for Economic Cooperation and Development), was the main cause of the failure of Mitterrand’s economic programme.
But there was also a second problem.
The French Socialists were living in a time warp.
The Left had not held power in France since 1936. Elsewhere in Western Europe – in Belgium, Britain, West Germany, Italy and the Scandinavian countries – left-wing governments had spent decades experimenting with social policy, discovering what worked and what did not. Nationalisation had been a socialist buzzword from 1945 until the 1960s. But since then its attractions had palled. Governments had proved on the whole to be less efficient managers than their private-sector counterparts.
The seemingly naïve questions of White House officials like Richard Allen and Ed Meese, who likened Mitterrand’s nationalisations to those in a communist system, were not quite as dumb as they sounded. Not only was France’s economic strategy in 1981 taken almost word for word from the Common Programme, which the Socialists had worked out with the Communists nine years earlier, with no allowance for the two Oil Shocks and all the other economic changes that had occurred in between, but one of its guiding principles – state ownership of the means of production – was a holdover from the nineteenth century which was irrelevant to the conditions of Western Europe a hundred years later.
The same was true of lowering the retirement age and shortening the working week as a means of job creation. This assumed that there was a limited amount of work to go round and that dividing it up into smaller portions would mean that more workers could be employed. It was a seductive theory, but wherever it had been attempted on a large scale – mainly in the communist bloc – it had led to massive inefficiencies.
Mitterrand’s programme was not merely archaic, as Michel Rocard had complained. It was an anachronism.
Even those parts which did work had a downside. The recruitment of more civil servants certainly helped to slow the rise of unemployment. But paying for them widened the budget deficit and dragged down the rest of the economy. The same applied to the decision to grant residence to illegal immigrants. It was compassionate and generous. But it encouraged a flood of new arrivals hoping that they, too, might benefit from the government’s largesse.
The core policy of the new programme – raising incomes to spark a consumer-led boom – also failed. French manufacturers, wary of the Left’s policies, were reluctant to increase production.43 Accordingly more than half the extra money that the government put in people’s pockets was spent on imports, mainly automobiles, household goods and electronics, from West Germany, Italy and Japan, thereby doubling France’s trade deficit.
Since the Left was convinced that its policies could not be wrong, the problems had to be the result of deliberate sabotage by its opponents.
Mitterrand set the tone, grumbling that the government was too slow to remove right-wing officials who ‘keep throwing up roadblocks’. Paul Quilès, one of his ‘sabras’, declared, paraphrasing Robespierre, that it was ‘not a matter of saying that heads should fall, but of saying which ones, and quickly’. Another party stalwart, André Laignel, declared that the Right was ‘juridically wrong because politically [they are] in a minority’.
Mauroy was furious. ‘These people are doing everything in their power to make the public panic,’ he raged. ‘If they were trying to make us fail, they wouldn’t behave differently.’
But countries, like people, learn from their own mistakes, not from those of others. The French Socialists had to absorb in months knowledge which their neighbours had accumulated over decades. Moreover, as even Delors later admitted, Mitterrand had little choice but to pursue the policies for which he had been elected.44 Amid the elation which followed his victory, it would have been politically suicidal for the first authentically left-wing government to hold power in France for forty-five years to launch its term in office by embracing the principles of the Right. It was more than just a case of making the best of what could not be helped. Mitterrand really did believe – or wanted to believe – that, given sufficient political will, France could triumph over economic reality. The learning curve was painful and steep. It was a very bruising first twelve months.
By the summer of 1982, every economic indicator was flashing red.
Mitterrand postponed a policy decision lest it detract from that year’s G7 summit, which he hosted in the opulent surroundings of Louis XIV’s palace at Versailles, a setting that conveyed the image, and the memory, of the greatness of France and flattered his sense of history. But once his fellow leaders had departed, the day of reckoning could no longer be put off. On Wednesday June 9, Mitterrand gave a news conference at the Elysée, the second of his presidency, at which he revealed, in terms so elliptical that few of those present realised the significance of what he was saying, that change was in the air. The word ‘unemployment’ did not pass his lips, an implicit admission that for the moment that battle had been lost. He spoke instead of the deteriorating global economy, acknowledging that it had ‘taken [the government] time to coordinate, to grasp the objectives, to harmonise [its policies] and to attack the most urgent tasks’. Using the analogy of a cycle race, he declared that the first phase was now over and the second was about to begin.
[In] the Tour de France, when [the teams] start the second stage, they are still heading for the same goal as in the first stage, that is, towards victory . . . even if, to get there, there is a change in the nature of the stages as they go from one to another. At one point, they are in the plains . . . At another, in the mountains. But it doesn’t alter the fact that the goal remains the same.45
To those able to decode the metaphor, it meant that the months of plenty were over. France was heading into difficult times which would require much greater efforts from all segments of society. The illusion of a consumer-led boom was abandoned. In its place would come a new emphasis on balancing the budget, fighting inflation, restructuring and modernising industry, investing and innovating.
That weekend the franc was devalued by 9.75 per cent against the Deutschmark, which, in the wake of an earlier devaluation of 8.5 per cent the previous October, meant that it had lost almost a fifth of its value against the West German currency in nine months. On Sunday, Mitterrand chaired a Cabinet committee at the Elysée which approved the accompanying austerity programme: a four-month price and wage freeze; a cap on the budget deficit at 3 per cent of GNP; and a commitment to bring inflation below 8 per cent in 1983. Two years after the United States, newly socialist France had joined the rest of the industrialised world in a forced deflationary spiral to get its economy back into balance.
The government did not admit that there had bee
n a change in direction. The word ‘austerity’ was taboo. The Left insisted that its role was to redistribute wealth more equitably even if the national cake was meagre – redistributing penury, as Mauroy wistfully put it.46 Officially the strategy was unaltered; only the tactics were different.
In private, however, the Cabinet was divided.
The left wing of the Socialist Party, represented by Jean-Pierre Chevènement, supported by the Communists, wanted France to go it alone, abandoning the exchange-rate limits of the European Monetary System (EMS), which allowed European currencies to fluctuate narrowly against each other while jointly floating against the US dollar but in return required governments to act together when the system came under strain. Released from the constraints of the EMS, Chevènement argued, the franc could float freely – as sterling did, Britain at that time having declined to join the exchange rate mechanism – and the government, no longer obliged to keep looking over its shoulder at the reactions of its European partners, would be able to continue the expansionist economic policies and accompanying social reforms for which Mitterrand had been elected.
Mauroy and Delors were adamantly opposed, arguing that if France left the EMS, the franc would go through the floor and the government would be forced to go, cap in hand, to the IMF for a bail-out, as the Labour government had in Britain six years earlier.
Mitterrand equivocated. When the Cabinet met the following week, he gave both sides reason to hope. He accused America of behaving with its usual ‘holier-than-thou egoism’ and ganging up with the other ‘big capitalist countries’ to try to prove that France could not do without them. That was music to the ears of Chevènement and his Communist allies. On the other hand, he said, the French Left had accepted the principle of a free-market economy and it had to live with the consequences, which pleased Mauroy and Delors. Only if the price-and-wage freeze failed, he concluded, might it be necessary to contemplate ‘a third phase, which could lead us to leave the EMS’.
This last remark was a way to put pressure on Mauroy to ensure that the freeze succeeded. It was also designed to show that the policy was not set in concrete. If it did not work, there was an alternative.
Mitterrand had two irons in the fire and for the next few months he intended to keep it that way. Apart from economic considerations, he had a political reason to delay: town council elections, the first national test of opinion since 1981, were due the following March. A major change of economic policy – whether by tightening the screws of the austerity programme or leaving the EMS – would be risky before that hurdle had been cleared.
Hurrying slowly suited him in other ways. On topics that he understood well – foreign affairs, defence, cultural and social policy – he could weigh up the advice he was given, discard what he disliked and integrate the essentials. On economic matters it was different. He understood the choices being offered to him but he lacked the intimate command of financial and economic grammar that would enable him to arbitrate instinctively as he did in other fields. The result was that he faced a critical choice – whether to stay in the EMS or to leave it; whether to confirm France’s leading role in Europe or to strike out alone – in a domain in which he was reliant on the judgements of others.47
Mitterrand hated being dependent. His inclination was to hold back until, through sheer weariness, a solution imposed itself.
In any case the experts disagreed among themselves. Jacques Attali organised a lunch for France’s leading economists in Mitterrand’s private apartments at the Elysée. ‘It was bedlam,’ he said later. ‘Everyone had a different opinion. No two of them said the same thing.’
The captains of French industry were no better. François Dalle, now head of l’Oréal, pleaded with Mitterrand to stay in the EMS. Jean Riboud, of Schlumberger, another friend of thirty years’ standing, championed the opposing view. The ‘evening visitors’, as Mauroy baptised Riboud’s group, argued that if the franc were allowed to float, the French economy would recover its dynamism, productivity would increase and the country would ‘produce more and produce better’, in Chevènement’s phrase, creating a virtuous circle in which inflation and unemployment would both fall. Mitterrand was intrigued. Riboud was a larger-than-life character, one of the world’s most highly paid capitalists, on good terms with the Communists (whose network had helped him survive the horrors of Buchenwald) and a noted patron of contemporary art. He was the inspiration for a speech Mitterrand gave in September 1982 at Figeac, in south-west France, attacking ‘the growth of the tax burden, high interest rates and over-indebtedness’ for French companies, the first time that anyone on the Left had spoken publicly in such terms.
While the ‘visitors’ pulled one way, Mauroy pulled the other. Mitterrand hesitated.
The government massaged the unemployment figures to try to keep them below the symbolic figure of two million.48 The indexing of wages to price rises, introduced under Giscard, was rescinded, and by the beginning of 1983, inflation had been brought below 10 per cent. Mauroy was able to claim success. But it was clear it could not last. The trade deficit continued to widen. New measures were inevitable. Mitterrand’s dilemma was unchanged. To stay in the EMS and in Europe? Or to head into uncharted waters?
On Sunday, March 6 1983, Helmut Kohl’s Christian Democrats and their allies won a resounding victory in the West German parliamentary elections. A week later, in the French municipal elections, the Socialists lost thirty-one towns of more than 30,000 inhabitants and gained only one, Châtellerault, midway between Paris and Bordeaux, where Édith Cresson became mayor. Mitterrand had feared worse. Left-wing voters were disenchanted with the wage freeze and rising unemployment. It was a shot across the government’s bows – ‘a narrow escape’, as he told the Cabinet – but nothing comparable to the debacle that the Right had suffered in 1977, when it had lost control of fifty-five large towns. Back on political terrain, Mitterrand steeled himself to act.
The next ten days were the most critical and among the most criticised of his fourteen years in power.
He knew that the franc would have to be devalued against the Deutschmark yet again – for the third time in eighteen months. But should it be done within the EMS? Or outside?
The stakes were huge.
It is always difficult, and usually pointless, to speculate on where History might have led had it taken another course. But if a different choice had prevailed in Paris in March 1983, the Maastricht Treaty, engineered by Kohl and Mitterrand, would almost certainly not have been signed. The common currency, the euro, willed as an instrument of convergence between European states, would probably never have been launched.49
Mitterrand’s actions that week were more coherent than his adversaries gave him credit for, but with a larger part of improvisation than he would afterwards admit. Since he had no way to assess independently the validity of the conflicting economic theses, he approached it the way he knew best: by ramping up the political pressure on the different protagonists.50
On the morning of Monday, March 14, Mitterrand told Pierre Mauroy he had decided that France should leave the EMS. He asked him ‘to stay on at Matignon at least to get the new policy started’. Mauroy refused. ‘I don’t agree,’ he told the President. ‘Leaving the EMS would be a catastrophe.’ Mitterrand asked him to think it over. That evening, when Mauroy returned with a letter of resignation in his pocket, he told Mitterrand that he was sticking to his position. ‘Your policies are courageous and you are courageous,’ the President replied. ‘But it is costing us dear politically. I will see. Do your job as Prime Minister. Let us not talk of resignation.’
The following afternoon, Mitterrand sounded out Delors. Would the Finance Minister accept the post of Prime Minister if France left the EMS? Delors, like Mauroy, declined.
On Wednesday, Mitterrand asked Fabius, who had been urging him to leave the EMS, to think through what he would do if he replaced Delors. At Attali’s suggestion, Fabius called in the Permanent Secretary to the Treasury, Michel Camde
ssus, who, as Attali had anticipated, spelt out for him the effects of leaving the exchange rate mechanism: the franc would lose at least 20 per cent of its value against other currencies, and since the country’s reserves were exhausted, the only way to defend it would be to raise interest rates to unheard-of levels, which would starve industry of credit and asphyxiate investment.
‘I saw Fabius suddenly change colour,’ Camdessus wrote later. ‘He had not realised all the consequences of abruptly uncoupling the franc.’ The young minister went back to Mitterrand and told him he had changed his mind. Leaving the EMS would mean more austerity, not less, and would make the modernisation of French industry impossible.
Within the Cabinet that left only one holdout. Pierre Bérégovoy, who had left the Elysée the previous autumn to become Minister of Social Affairs, continued to believe that France would do better outside the EMS.fn7
On Thursday, Mitterrand asked him to ‘form a government’ on the basis of France remaining in the EMS. In French, the expression is ambiguous: it could mean either, ‘draw up a list of ministers’ or ‘prepare to lead a new government’. Bérégovoy set to work.
The conclusion cried out. Those who opposed leaving the EMS – Mauroy and Delors – were willing to put their jobs on the line; those who had been in favour – Bérégovoy and Fabius – were not.
Yet still Mitterrand refused to commit himself.
This was his ‘de Gaulle moment’. Where the General had been called back to power in 1958 with a mandate to keep Algeria French, only to be forced to bow before the wind of decolonisation and grant Algeria independence, so Mitterrand, having been elected to reject the liberal economic model, found himself forced to do the opposite because of the economic blizzard blowing in the rest of the industrialised world.