JACQUES CHIRAC has occupied the Elysee palace for barely 18 months and has already stamped his personality on the French presidency. Energetic and populist where his predecessor was intellectual and aloof, Chirac has plunged eagerly into the business of projecting France as a significant power. He has travelled constantly, visiting key allies and reviving relations that an ailing President Mitterand had been unable to sustain. In Lebanon in the spring the high-profile activity paid off when France played a pivotal role in ending the Israeli assault and establishing the ceasefire.

At home, the economy is on the mend although another round of the public sector strikes that crippled the country last autumn is threatening the government's budget plans, and its public profile. For neither Chirac nor Prime Minister Alain Juppe, who has the thankless task of turning election promises into policy, are especially popular. Although they have pledged to slash unemployment, cut taxes and stimulate growth, the centre- right administration has found it hard to deliver. Huge reductions in public spending are required if France is to cut its budget deficit sufficiently to qualify for European Monetary Union (EMU). The risk is that the cuts may only worsen already difficult conditions, causing economic stagnation, reducing competitiveness and leading to more job losses.

Participation in EMU is the cornerstone of French foreign policy which is founded on the project for closer union in Europe and driven along by the Franco-German alliance at its centre. France's actual economic performance falls far short of the criteria- which it helped to define - for adoption of a single currency in 1999. That is why the draft budget for 1997, unveiled on 18 September, attracted such attention. The franc had been under pressure all summer, an independent central bank is keeping interest rates high - to the intense irritation of the government, which considers them deflationary - and unemployment is still rising, to a record rate of 12.6 per cent in August. At the same time, the government is committed to delivering tax cuts and will be desperate to do so before the parliamentary elections in 1998.

On target

Needless to say the draft budget shows France meeting the deficit target of 3 per cent of gross domestic product (GDP) next year. The key to reaching this end is a massive infusion of funds from France Telecom, for the government plans to make only modest savings in spending. The actual reduction in the central state budget deficit is a mere FF 4,000 million ($787 million). To achieve the desired results, the government is also counting on growth of 2.3 per cent in 1997, compared with its estimate of 1.3 per cent for this year. Both figures are considered optimistic.

Despite the protestations of Finance Minister Jean Arthius that the budget targets are achievable, analysts have reserved judgement rather than accept the figures at face value. 'So far, the markets have allowed their economic doubts to be trumped by the might of the Kohl-Chirac axis. But Mr. Arthius cannot stretch their patience indefinitely,' the London daily Financial Times said in a caustic commentary on the budget plans.

The danger for the government is that a difficult economic and social situation will be aggravated by the budget strategy and the imperative of meeting the Maastricht criteria. Key unions are already mustering their members to protest against plans for lower spending and the government may be forced to back down, even on the modest savings it is proposing. Opinion polls published at the end of the summer break in late August revealed widespread disenchantment and pessimism about prospects for the economy over the next six months.

An active diplomatic policy has delivered more tangible rewards for Chirac than the intractable domestic scene. French presidents have an ambivalent relationship with their prime ministers, happy to be associated with them if they are successful, maintaining a discreet distance if they are unpopular. So far, Chirac has stood by his embattled prime minister but he has made a much greater impact abroad where he has a free hand to create policy.

Positive foreign policy developments this year have helped to dim the memory of Chirac's disastrous first weeks as president when he ordered the revival of nuclear tests in the Pacific. The tests were not popular in France and drew fierce condemnation from abroad. They did, however, project a muscular image of France as a power to be reckoned with, and Chirac as its champion. France lost influence in the Pacific but its standing in other regions may well have been reinforced.

Chirac has paid particular attention to the Middle East and North Africa where displays of French strength are generally appreciated. France orchestrated the Barcelona summit in November 1995 which pledged a total of ECU 10,000 million in development funds for the Mediterranean region. It also plays a strategic role as one of the three Western powers with a permanent military presence in the Gulf. State visits to Morocco and Tunisia last year were followed by trips to Egypt, Lebanon, Saudi Arabia and Qatar earlier this year. In late October the president is due for a sweep through Egypt, Israel, Gaza, Lebanon, Jordan and Syria.

The undisputed diplomatic achievement of the year was the part played by Paris in arranging a ceasefire in Lebanon in April which ended the Israeli bombardment, known as Operation Grapes of Wrath. To the barely- disguised irritation of the Americans, French Foreign Minister Herve de Charette shuttled between Beirut, Damascus and Tel Aviv to broker a deal. France is the co-chair of the committee set up to monitor the ceasefire, along with the US.

Despite French satisfaction at having responded rapidly, leaving the Americans on the sidelines, the role of the committee is modest. Comprising representatives of Israel, Lebanon and Syria as well as the US and France, it is intended to control small incidents and prevent them from escalating. Any member can put a complaint before the committee which has met six times so far at Nakoura in southern Lebanon. The French are satisfied that it has played a useful role in reducing tension in the border area.

Paris was also instrumental in urging the creation of the Consultative Group for Lebanon which will respond to Beirut's demands for international aid for its repair and reconstruction programme.

The setbacks suffered by the peace process in recent weeks are viewed with concern in Paris, which was hosting Israeli Prime Minister Benjamin Netanyahu on 25 September, just a day before the Jerusalem tunnel crisis forced him to abandon his tour of Europe. France is committed to the vision of peace developed around an exchange of land for peace and is urging Israel to ease the blockade of the Palestinians, withdraw from Hebron as agreed and get on with the final status talks.

In a major policy speech at the University of Cairo in April Chirac said that 1996 would be a decisive year for the peace process, declaring that the basis for an accord between Israel and Syria was already clear in a complete Israeli withdrawal from the Golan in exchange for complete peace. Like everybody else, Chirac reckoned without the victory of Netanyahu in the Israeli elections in May.

The French commitment in the Gulf is being maintained despite subtle differences with the US over the role of the Western deterrent forces. France contributes six aircraft to Operation Provide Comfort in Turkey and another six to Operation Southern Watch in Saudi Arabia, alongside the US and the UK, to police the no-fly zones in Iraq.

Iraqi scruples

Paris argues that UN resolutions on Iraq must be scrupulously respected by the Gulf war allies if the Iraqis are to be persuaded to co-operate. Accordingly, it does not recognise the unilateral extension by the US of the air exclusion zone in southern Iraq and French planes fly no further than the 32nd parallel. France did not support the recent Iraqi incursion into the Kurdish north but also saw no legal basis for opposing it. 'We had some reservations about the US reaction,' says an official. 'The Iraqi action was ill-advised politically but it was not illegal and therefore there was no justification in law for the US reaction. We know the Iraqis will use it against us if we do not respect international law.'

France is keen to see UN resolution 986 - on limited oil sales - implemented as quickly as possible and claims credit for having persuaded Iraqi Deputy Prime Minister Tariq Aziz, who visited Paris in 1994 and 1995, that it was in Iraq's best interests to accept it.

Paris also parts company with the US when Washington insists that Iraq must do more than satisfy the UN inspectors before sanctions can be lifted. They argue for a strict interpretation of the texts of the agreements, rewarding Iraq when it complies fully with UN resolutions to reduce the risk that Baghdad might end all co-operation with the UN.

Paris bridles at suggestions that this policy towards Iraq is opportunistic, designed to reap commercial rewards once the sanctions are removed. 'We contest the view that our policy on Iraq is only guided by our economic interests,' says the official. 'Of course, French companies are present, but so are the UK, Americans, Germans and others.'

French opposition to further US attempts to isolate Iran is outspoken. Paris backs the EU's hostile reaction to the D'Amato bill on secondary sanctions, and oil company Total is pursuing a high profile investment in the oil and gas sector. 'We do not see why we should refuse such a contract opportunity,' says the official. 'We go on with the critical dialogue. It's better to talk to them rather than ignore them.' In July Paris quietly signed an agreement to settle a $120 million debt Iran owed to carmaker Peugeot, removing an obstacle to the resumption of Coface cover on exports to Iran.

France has far more intimate relations with Arab states on the other side of the Gulf, however. The region is a prime market for defence export sales and France has defence co-operation agreements with Kuwait, Qatar and the UAE. In Abu Dhabi GIAT Industries is delivering a vast order for Leclerc tanks and promoting an enormous offset programme (see page 16).

Despite Saudi Arabia's reliance on US military assistance France provides significant support and equipment for the Saudi navy under two long-term co-operation agreements. Paris also sees opportunities to broaden the ties as the kingdom may be keen to reduce its reliance on one overweening partner. It is lobbying hard for the sale of the Leclerc main battle tank to the National Guard and Chirac came away from a July visit to the kingdom with an order for 12 Cougar helicopters.

As a former colonial power, a close connection with North Africa remains an inescapable feature of French foreign policy (see page 12). Paris may no longer be the political master, but it is the main economic partner of the Maghreb countries. An innovative debt-for-equity swap has been engineered in Morocco and financial protocols with Tunisia renewed. There has been a concerted effort to keep out of Algeria's bitter political conflict while offering financial support. 'Even if we wanted to, it is not possible to ignore Algeria,' comments a diplomat. Protected by massive security precautions Foreign Minister de Charette paid a rare visit to Algiers in August. 'It was a way of saying that we have normal relations and there is nothing more normal than a ministerial visit,' says the diplomat.

By any standards Chirac has demonstrated an exceptional interest in the Middle East since he became president, building on a familiarity gained from his years as prime minister. The perils of such activism may be diplomatic disappointments in the future but the other benefits of cultivating closer ties are already apparent in major defence orders and other commercial successes.

Exchange rate: $1 = FF 5.18 (Oct. 1996)