New economic policies may not suffice to solve France's problems, writes Lara Marlowe in Paris.

The French Minister for Finance, Mr Hervé Gaymard, this week unveiled the economic policies he will pursue until presidential and legislative elections in 2007.

There was a barrage of gimmicks to win the votes of the middle classes and small and medium-sized enterprises (SMEs); untaxed gifts of up to €30,000 to children and grandchildren; interest on checking accounts; the creation of "rechargeable mortgages", so that home owners can borrow money for other purposes; promises to reimburse 80 per cent of VAT to SMEs within a month; easier access to the bourse for SMEs, and loans if they get into trouble.

Only 50 per cent of French households pay income tax but Mr Gaymard promised to reduce rates for those at the lower end of the scale. There will be lower rents and higher employment bonuses for those who find work.

French people working abroad will be eligible for tax exemptions after 120 days outside the country, instead of 183 at present.

Companies can deduct 10 per cent of their research expenditure, compared to 5 per cent until now. Employers will no longer pay social charges for minimum-wage earners.

Students will be able to deduct interest on student loans from their first income tax payments. In the interest of "equality", the state will reduce interest charges on monies due to it from 9 per cent to 6 per cent; when it owes the taxpayer money, the interest rate will rise from 2.5 per cent to 6 per cent.

It added up to a strong impression that the finance ministry is about to add more bureaucracy, without denting any of the "structural blockages" which Mr Gaymard promised to tackle. For those, he promised a "mission of reflection" on the taxation of savings, to be headed by a banker, and an "orientation council on employment".

Mr Nicolas Baverez is a prominent French historian and economist whose 2003 book La France Qui Tombe plunged the country into a bout of déclinisme or soul-searching about its own decline. A pitiless critic of government economic policies, Mr Baverez predicts that Mr Gaymard's measures will change little.

"The French economy has two problems: it's been stuck at an average 1.8 per cent annual growth since 1990, and it's been dragging around 10 per cent employment for the past quarter century," he said in an interview.

"The last budget surplus occurred in 1974. France's foreign trade deficit for 2004 will be about €6 billion, while Germany will have a €650 billion surplus."

Mr Gaymard announced an approximate growth rate of 2.4 per cent for 2004. Mr Baverez says it will be closer to the 2.1 per cent predicted by the statistical institute INSEE.

"The small increase comes from consumption, which is financed by the welfare state," Mr Baverez explained, adding that social payments by the French state account for 30 per cent of GDP.

What lies behind these figures, Mr Baverez continues, "is that the engine of the French economy has stopped because there is no productivity in the private sector and there is a predator state that monopolises 54 per cent of GDP."

The French Prime Minister, Mr Jean-Pierre Raffarin, recently spoke of the need to adopt a "positive attitude".

Mr Gaymard agreed: "I am fed up with this sinistrose," he said of the sombre mood in France. "For years we've been in a sort of nervous depression."

Although aware of the difficulties suffered by some people, Mr Gaymard pointed to the French companies who are "world champions."

Yes, Mr Baverez said, but 48,000 French companies went bankrupt last year. If you look at France's leading "CAC 40" companies over the past decade, there was zero growth in employment and investment in France.

Abroad, the same companies increased investment by 80 per cent and the number of employees by 65 per cent.

"To be able to work, they had to disconnect themselves from France," he said.

Mr Gaymard said the French "must stop their navel-gazing and go forward", that "a large part of the blockage is in our heads".

"To reform a country, you have to tell the truth to its citizens," he said. "Today, the right says: 'There's no economic crisis, just a feeling of economic and social crisis' and it's false."

Mr Baverez is often called a Cassandra, after the princess of Troy who was given the gift of prophecy but was cursed never to be believed. The only way for France to break out of chronic economic decline, he says, is to increase employment, productivity and innovation. The law reforming the 35-hour working week is not enough, he says.

Taxation must be changed, especially the Impôt Sur la Fortune (ISF), which dissolves personal wealth exceeding €770,000. "It drives brains and businessmen out of France," he says.

This year, Mr Baverez notes, the health insurance system will run up a €14 billion deficit; the pension system €1.5 billion; insurance against accidents at work €700 million. Last year, the unemployment insurance system had €10 billion in deficits.

If it's that bad, what keeps the French economy from crashing? "The euro acts as a monetary social security," Mr Baverez says. "If France were in this state without the euro, she would have suffered a major currency or exchange rate crisis."