Jospin says au revoir to Emu depression

What a difference three months makes. The French economy, which appeared to be sinking into crisis in early summer, with no chance of meeting the Maastricht guidelines, is enjoying a near-miraculous recovery.

Officially, the French government says that it should have no difficulty in approaching the Emu-dictated budget deficit ceiling of 3 per cent of gross domestic product (GDP) this year. Unofficially, it is estimated that the deficit - reported to be out of control in June - may even sink by the year's end to 2.9 or 2.8 per cent.

The shift in the French economic outlook leaves only one, large, outstanding Emu quarrel between Bonn and Paris which could disturb the final decisions on the single currency due early next year. The Socialist-led government of Lionel Jospin is still officially committed to Italian, Spanish and Portuguese membership as a pre-condition for French membership. Germany remains extremely doubtful on this, and about admitting Italy in particular.

But senior French government sources say that they can now imagine some form of compromise: perhaps an agreement that countries which fail to meet Maastricht targets this year could still join by the 1999 starting date, or just afterwards, so long as they continue to bring their public finances under control.

Mr Jospin's government is reaping the benefit of the sudden change of economic weather in France and is even beginning to claim some of the credit. A package of emergency spending cuts and tax rises imposed in July did help to close the deficit gap. But Mr Jospin has also had two strokes of unexpectedly good luck.

The rise in sterling, the dollar and some southern European currencies has boosted French exports and tourism receipts to stratospheric levels. Domestic demand has finally started to pick up. As a result, economic growth, which has been stuttering at around 1.5 per cent for seven years, is expected to rise to 2.4 per cent this year and to more than 3 per cent in 1998.

There has also been a marked shift in the public mood, from excessive pessimism to cautious optimism. Whether this is the cause, or the effect, of the increase in growth is impossible to say. Philippe Maniere, in the magazine Le Point, describes it as a "mystery of the collective [French] psyche". Abruptly, people are beginning to spend more money in restaurants and shops; there is also an upturn in investment by industry.

All is not plain sailing. Everyone recognises that it will take months before the increased growth begins to eat into the high level of unemployment (12.4 per cent). The US dollar and sterling have started to slide against the franc again, which might slow the French recovery.

But, for the time being, the four apparently monumental conditions for French membership of Economic and Monetary Union, which the Socialists set during the election, have shrunk to manageable proportions. The likely exchange rate between the dollar and the euro should no longer pose a problem for Paris; there is no need for further cuts in public spending; Germany has agreed to a summit on unemployment and a form of words on political management of the euro zone; and some compromise may be possible on Italy.

The one person who is doubtless looking at all this in bemusement, and with some bitterness, is President Jacques Chirac. He was persuaded to call an early election partly because he was told that economic conditions, and the budget deficit, were going to get worse, before they took a turn for the better. If he had waited until next spring, his centre-right coalition might have held on to its majority in the national assembly.

n Paris (Reuters) - Greenpeace yesterday started legal action against Cogema, the French state nuclear reprocessing company, accusing it of dumping nuclear waste into the Channel during operations to clean up a clogged discharge pipe. The environmental group said it had lodged a complaint saying that Cogema's La Hague plant had harmed marine life; and it alleged that some 50kg of waste had spewed into the sea during work on the 5km pipe. Cogema insisted that other Greenpeace measurements taken earlier this year were invalid because samples were taken too close to the pipe.