French Socialists bolster record for '86 vote

``The situation of the French economy is bad and going worse,'' says Bernard Marx, an economist and member of the Central Committee of the French Communist Party. ``The Socialists have had to become more realistic, more pragmatic,'' a French banker says. ``They have moved to the center.''

Since the middle of 1982, the Socialist government has pursued ``pragmatic, sensible'' economic policies, according to J. Paul Horne, who tracks the European economy at Smith Barney, Harris Upham & Co.

Those comments reflect an odd part of the French scene nowadays: capitalists cautiously and sometimes reluctantly praise many actions of the supposedly ``leftist'' government of French President Franois Mitterrand; the Communist Party -- until last summer part of the governing coalition -- harshly criticizes the Socialists.

The Socialists, looking toward parliamentary elections next March, figure their only hope of retaining power in the National Assembly is in getting the economy in good shape by next winter.

Already, an economist in the Elys'ee Palace maintains, the French economy is in a ``much better situation.''

And, to a considerable extent, other economists agree that the Socialist government's switch in 1983 from a policy of economic stimulation and generous socialist measures to one of inflation-fighting austerity, trimming the balance-of-payments deficit, and free market-oriented action has been relatively successful.

``The results have been quite good,'' says Smith Barney's Mr. Horne.

Inflation, which was running around 14 percent when the Socialist-Communist coalition took power in 1981, came down to 6.7 percent by the end of last year. This year the government hopes the inflation rate will drop to 5 percent. It may be a fraction of a percent higher, some economists reckon. Nonetheless, inflation has not been below 6 percent in France since 1971.

The difference between the French inflation rate and the lower rate of West Germany has never been so narrow, the Elys'ee economist noted.

This means French goods will remain competitive within the European Community for a longer time. Unless the inflation gap with the deutsche mark is eliminated, however, the franc will eventually face another politically embarrassing devaluation within the European monetary union.

The Socialists have also succeeded in de-indexing wages from the inflation rate. This makes it easier for industry to control wage costs, restrain prices, and boost profits. For the left, the word ``profits'' has had overtones of class conflict and worker exploitation. The Mitterrand government endorses good profits.

Many employees, who once regarded indexation as something nearly sacred, now see that wage levels must be related to output and productivity.

In any case, the number of strikes has also dropped dramatically. The government has permitted both nationalized and private industrial companies to ``restructure'' to meet competition and aim for profitability, even when this has meant a loss of jobs.

``We have a social policy that compensates for this,'' says the high government official.

Unit labor costs (the labor cost in making a unit of goods) should rise only 4 percent this year, compared with 10.8 percent in the decade following 1973, Horne predicts. Next year he estimates a rise of only 1.75 percent.

France's balance-of-trade deficit has fallen from 93 billion francs ($10.2 billion) in 1982 to 20 billion francs last year. ``We hope to do a little better this year,'' said the presidential palace official.

The current account, including tourism, services, and other factors, was basically in equilibrium last year. The government expects a similar balance this year.

On the negative side, the economy has been growing more slowly than the government had hoped. There was no growth in output in the first quarter, and the latest forecast from Insee, the national statistics institute, says that real gross domestic product will rise by a mere 0.8 percent this year. This compares with 1.5 percent in 1984.

The government has been saying the growth in the nation's output of goods and services would be 1.5 percent or better.

Moreover, unemployment is running around 10.3 percent of the labor force, up from 7 percent when the Socialists took office. Government economists argue, however, that unemployment would be even higher if the government had not dramatically boosted spending, contrary to its major trading partners, when it first came to power. Non-government economists are skeptical of this claim.

Whatever, the government last week launched a retraining program to help laid-off workers. It will involve only 20,000 to 30,000 workers -- a small number compared with the 400,000 laid off last year and the millions unemployed.

Indeed, growth is so slow that unemployment could continue to rise. With next year's election approaching fast, the government will come under greater pressure to stimulate the economy with more spending or a looser monetary policy.

As it is, observers here reckon that the Socialists will win only 30 to 35 percent of the vote next year. What will happen then is the subject of much speculation. Some see the center-right parties forming a government. With the presidency still held by a Socialist, this would present something of a constitutional anomaly.

A second possibility would be for the Socialists to join with an element of the political center to form a center-left coalition.

Others see the Socialists teaming up with the Communists once more. If the Socialists renounce their ``capitalist policy'' in favor of a ``new policy,'' then the Communists might make an alliance, the Communist Party's Marx said.

Most observers, however, see the French electorate as having moved to the right, favoring more free enterprise for the economy. A renewed Socialist-Communist coalition would contradict that trend.

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