France ditches carbon tax as social protests mount

Telegraph.co.uk

by Ambrose Evans-Pritchard 23 March 2010

France is facing its own 'spring of discontent' as strikes shut schools, courts, railways and metro services, and trade unions vowed mass protests across the country.

President Nicolas Sarkozy on Tuesday scrapped the country's proposed carbon tax and reshuffled his cabinet in populist tilt after suffering a crushing electoral defeat over the weekend, when his Gaulliste UMP party lost every region other than in its bastion of Alsace and the Indian Ocean island of Reunion.

The vote saw a resurrection of both the Socialist Party and the far-Right National Front, showing how the delayed effects of rising unemployment can change the political landscape long after recession has passed. The jobless rate has risen to 10.1pc, up from 8.7pc a year ago. A quarter of those aged under 25 are out of work.

The government said its energy tax was being postponed indefinitely in order not to "damage the competitiveness of French companies", fearing that it would be too risky for France to go it alone without the rest of the EU. Brussels has announced plans for an EU-wide tax, but the initiative already looks doomed.

Chantal Jouanno, the environment secretary, said she was "devastated that eco-scepticism had prevailed". France's leading green groups wrote a joint letter to Mr Sarkozy saying they were "scandalised" by his decision, accusing him of tearing up a pledge to put climate change at the centre of his presidency.

Medef, France's business lobby, said the demise of the carbon levy was a "relief". The tax would have been €17 a tonne compared to around €100 in Sweden, but business feared that this would creep up over time.

The trade unions said half of all primary school teachers followed the call to strike on Tuesday, though officials said the figure was 30pc. Half the commuter trains were stopped. The CGT union federation said it planned 180 marches across France to protest pension reform. The retirement age in France is still 60, far short of North European levels around 67. The pension deficit will reach €50bn a year by 2020 without radical changes.

France has hardly begun to pair back the fiscal stimulus of the last year, though the car scrappage scheme is being phased out in steps. The budget deficit is expected to rise to 8.2pc of GDP this year, with no real austerity until 2011. The country faces the same risks as the UK in delaying retrenchment as public debt surges above 80pc of GDP this year. Fitch Ratings and Standard & Poor's have begun to mutter that France may endanger its AAA status if it fails to act soon, though the Paris clearly has more leeway than London for now.

France's rigid labour markets tend to delay full recovery from downturns and cause debt to keep rising for longer than in Anglo-Saxon states. Gilles Moec, from Deutsche Bank, said France came through the recession in better shape than most European nations in part because it has a low exposure to exports outside the eurozone. The flip-side is that it risks being left behind by Germany as the rebound in global trade gathers pace.

Le Figaro said Mr Sarkozy's travails reflect the schizophrenia of the public psyche. "The problem is that voters thought they had elected a French Churchill when in fact they were only ready for a MacMillan," it said.