High unemployment, discontent with the government’s economic policies and fears that the EU’s eastward expansion is threatening jobs fuelled opposition to a treaty that aims to simplify decision-making in the bloc. The outcome has raised uncertainty about the government’s next move, not least as President Jacques Chirac is widely expected to dismiss Prime Minister Jean-Pierre Raffarin, and the policies to be pursued before 2007 presidential elections.

This will cast a cloud over business confidence, which is already mired at 1-1/2 year lows, and could prompt French firms to defer investment and hiring decisions, to the detriment of economic activity, analysts said. “People will say this is one in the eye for the establishment and the government, but what counts for the economy is the reaction of business,” said Mark Cliffe, global head of economic strategy, ING Financial Markets in London.

“A ‘No’ is hardly calculated to boost business confidence in the coming months so it is hard to see this as being positive for economic activity,” he said. Nicolas Sobczak, senior economist at Goldman Sachs, said the impact of the uncertainty generated by the French referendum should not be overestimated but added its effect would be felt. “This is just adding to other factors, such as an overvalued euro, but it will not help,” he said.

<B>No mandate for reform</B>

Analysts’ concerns about the economic outlook were shared by French Finance Minister Thierry Breton who said the country was entering a phase of great uncertainty and urged redoubled efforts to boost the French economy. Political uncertainty was thrown into the mix as Chirac said he would announce decisions on his government in the coming days, a clear signal he will reshuffle his government.

While the resulting policy paralysis will be short-lived, analysts said the government would be under pressure to respond to voters dissatisfaction and tread warily when it came to unpopular reforms to overhaul the economy. “Raffarin is history and there will be a new prime minister,” said Graham Bishop, consultant on European financial affairs. “But is there a mandate for economic reform in all this? No.”

Populist measures to win voters’ backing were more likely than tough reforms that would rile the public, analysts said. This could mean that the need to rein in the French deficit, which has broken the EU cap of 3 per cent of gross domestic product for 3 years in a row, is subordinated to measures to households’ spending power. “Certainly this is a vote in favour of the French model of Europe, which is a lot of social welfare and in the eyes of Anglo-Saxon investors, not much growth and big debt,” said Kit Juckes, strategist at RBS Financial Markets.

Even if the deficit is kept in check, the mix of policies is bound to change, analysts said. “There will be tax cuts, more spending and extreme caution in terms of reforms,” said Sobczak at Goldman Sachs. “What can’t be excluded are reforms which benefit the consumer, policies which make sure employment is safeguarded and households’ purchasing power goes up.”

<B>Swaha PATTANAIK</B>

<B>“Tsunami” and “masochism” in EU vote</B>

French commentators turned to terms like “political tsunami” and “masochist masterpiece” yesterday to describe the referendum that rejected the European Union constitution and threw the country into political crisis. The press was almost unanimous in its shock, just as it had been in its support for the treaty that voters rejected in a defiant warning to mainstream politicians, to Brussels and to the opinion elites that told them they should back it. The left-wing daily Liberation saw in the vote “a general disaster and an epidemic of populism sweeping away everything in its way – European integration, enlargement, elites, control of market forces, reformism, internationalism, even generosity.” It blamed “this masochist masterpiece” on “a political class trained by ostriches and hooked for years on lying” as well as what it called incompetent and cynical leaders.

The conservative Le Figaro said “one has to go far back into the history of our republic to find a day of equal intensity. The ‘No’ has won and everything is turned upside down.” Le Monde said: “France is no longer the eldest daughter of Europe. An era has ended in which she was always seen at the forefront of European integration.” It noted the traditional arguments for Europe as a guarantee of peace on the continent no longer convinced young voters. “Europe is no longer a utopia that mobilises voters.” The business daily La Tribune, in an editorial entitled “Political Tsunami,” said voters had punished President Jacques Chirac for not changing policies after his conservative allies suffered several defeats in last year’s regional and European elections. “The problem is that the choice the French made solves nothing, all it does is ask questions,” it wrote.