Sarkozy has plenty of big problems, but also some reasons to be hopeful

By saying the appointment of France’s Michel Barnier to the European Union’s internal-market portfolio, which includes financial-services regulation, will curb “the free-wheeling Anglo-Saxon model,” French President Nicolas Sarkozy accomplished three things last week.

He undermined the theory that EU appointees serve all member states; he indicated Gordon Brown was wrong to forfeit a chance to claim that post for a British appointee and instead secure the new post of foreign minister; and he triggered a brawl—round one of which went to Chancellor of the Exchequer Alistair Darling, who responded that a prosperous U.K. financial sector contributes to the prosperity of the entire European Union—to which Mr. Sarkozy responded by cancelling a planned visit to No. 10.

Further rounds to follow when Messrs. Brown and Sarkozy meet when the European Council next convenes.

Mr. Sarkozy has good reason to engage Britain in an economic debate. He wants to contrast what he feels is France’s economic performance in the current, or perhaps recently ended recession, with that of the European practitioner of the free-market model—and to do so in time to have an effect on the national regional governmental elections that are scheduled for early next year. Better to campaign on a performance that is superior to Britain’s than to focus on his own economic stewardship. The French economy—which will have recorded a decline of close to 3% when final figures for this year are tallied and, according to the Organization for Economic Cooperation and Development— will grow at puny annual rates of only 1.4% and 1.7%, respectively, in 2010 and 2011. Those growth figures can make only a small dent in France’s double-digit unemployment rate.

That might explain why only 27% of the French people polled by the Pew Research Center are satisfied with the country’s direction. That compares with 43% in Germany, but only 21% in Spain and Britain, about in line with what one would expect, given the relative conditions of those nation’s economies.

Answers to the right-direction, wrong-direction question, says poll analyst Karlyn Bowman of the American Enterprise Institute, a Washington think tank, are among the most significant from a political point of view.

Worse still for Mr. Sarkozy, OECD forecasts of a continuation of the recession-ending growth that is likely to be recorded in the this year’s final quarter is in part predicated on an expectation that exports, which account for a bit more than one-fourth of GDP, will reverse this year’s 11% drop, and grow by 4.7% and 6.4% in 2010 and 2011, respectively. The strong euro is one factor that just might make it difficult for French exporters to achieve that sort of growth, at least outside of the euro zone. Another is the failure of the government to enact reforms that would lower labor costs and bring social charges down from one of the highest levels in the EU.

Mr. Sarkozy has “left his economic reforms by the wayside after being spooked by riots.”

That’s how my colleague, Hudson Institute CEO Ken Weinstein, put it to me. Dr. Weinstein, an expert on French affairs—or at least the political and economic sort—joined me on a private visit to Mr. Sarkozy when he was mounting his 2007 presidential campaign and eager for ideas on how he might reform the French economy to make it more flexible and globally competitive. We thought our arguments favoring a host of market-based reforms were compelling. They weren’t. With a possible exception: Disincentives to recruiting workers over age 50 have been reduced. In all, Dr. Weinstein says, citing tabulation of the Thomas Moore Institute, which he describes as “a small but impressive right-of-center think tank,” Mr. Sarkozy has realized 90 of his 490 campaign promises and is working on another 142. Of others that can be classified, 232 have either been abandoned (30), altered (60), or put on the back burner (142).

It is, of course, unfair to declare Mr. Sarkozy has failed to obtain his election-campaign objective of moving France’s sustainable annual growth rate up from 2% to 3%. After all, the recession that has hit most of the world’s economies made that impossible.

Moreover, he might have reason to be somewhat more optimistic than the OECD. For one thing, The investment-tax cut scheduled for next year should boost investment. And the government’s effort to mediate between risk-averse banks and small businesses seems to be increasing the flow of credit, while its insistence that large companies pay their small suppliers’ bills promptly is giving small firms a further boost.

If by the end of 2011 France is doing better than the OECD predicts, Mr. Sarkozy might go into the 2012 elections with an increased percentage of voters believing the country is on the right track.