IS THIS A CROSSROADS--OR THE EDGE OF A CLIFF?

By THOMAS SANCTON/PARIS

FRANCE HAS THE HIGHEST CONSUMPtion of tranquilizers in Europe, and these days it's easy to see why. For more than a week, striking transport workers, joined by postal and utilities employees, have brought the country to a virtual standstill to protest the government's new social-welfare reforms. University students are striking and marching to demand more teachers and resources. Algerian radicals have conducted a wave of terrorist bombings, and soldiers carrying machine guns patrol the Metro and train stations. The unemployment rate is 11.8%, one of the highest in the industrialized world. After only six months in office, conservative President Jacques Chirac has seen his approval rating collapse. Meanwhile--as if there weren't enough problems at home--much of the outside world is still up in arms about renewed French nuclear testing in the Pacific.

These are troubling times in France, and there may be worse to come. With Chirac promising two years of belt tightening in order to shrink the government's huge deficits, the country faces the grim prospect of continued high unemployment and a paroxysm of social unrest that some fear could match the upheaval of May 1968. Chirac is betting that a dose of fiscal discipline will be rewarded by the return of strong growth, jobs and public confidence. If he loses that wager, disaffected voters may turn to the opposition Socialists in the 1998 parliamentary elections, which would produce a debilitating stalemate. The xenophobic far right could also make gains. Most worrisome, if Chirac's plans are thwarted, the country could fail to meet the economic criteria for founder membership in the European single-currency system in 1999. In that case, the future of European integration, the great project of the postwar era, could be fatally compromised.

The current crisis is no mere cyclical spasm. With both the cold war and the Mitterrand era over, France faces critical challenges. Will it be able to play a leading role in a more united Europe, or will it end the century where it began--overshadowed by a strong, united Germany? Will it continue to modernize its economy, or will it cling to a large, state-protected sector as a source of jobs and social stability? Will the French be able to preserve their culture and national identity in the face of the continuing encroachment by the Anglo-Saxons and a rising immigrant population?

If France stumbles, the consequences will be serious. The Franco-German partnership has been at the heart of Europe's evolution and stability for almost half a century. France is a key member of the Atlantic Alliance, boasts the world's fourth richest economy and is a leader in such high-tech fields as aerospace, electronics, telecommunications and software.

Chirac, 63, a two-time Prime Minister who will preside over the nation until at least 2002, has the reputation of being a pragmatic politician unencumbered by ideology. Yet he appeared to outline something of a vision while campaigning for last May's election, calling for bold reforms to stimulate the economy, heal the divisive "fractures" within French society and find inventive solutions to seemingly intractable problems--the main one being unemployment. The plan called for tax cuts, lower interest rates and job-creating measures.

After the election, however, Chirac and Prime Minister Alain Juppe confronted a hard reality: to meet the budgetary requirements for joining Europe's single currency by 1999, France must drastically reduce its public deficit from 6% of its GDP, or $83.6 billion, to 3%. As a result, in a jolting reverse, Chirac has abandoned his pump-priming promises in favor of a two-year program of new taxes, limits on social spending, and a public-sector wage freeze.

The proposed changes in the welfare system, which is currently $46 billion in the red, have angered a populace wedded to generous cradle-to-grave social benefits. Hundreds of thousands of demonstrators have spilled into the streets. Leading the charge are the country's coddled public-sector workers, whose privileges include guaranteed employment, special pension benefits and early retirement--at age 50 for some categories.

The protest began on Nov. 24 with a one-day general strike by civil servants. The movement snowballed when employees of the debt-ridden national railroad, protesting plans to restructure the company, launched an open-ended work stoppage. They were soon joined by mass-transit workers, mail sorters and state utilities workers. The result was cities snarled with traffic jams and millions of people forced to walk, bicycle or hitchhike to work. The economic cost to the country is hundreds of millions of dollars a day.

So far, in spite of the massive disruptions and frayed nerves, public opinion appears to favor the strikers. But most analysts agree that Chirac has little choice but to stay the course. "If the government backs off this time, it is finished," says Pascal Perrineau, director of the Center for the Study of French Political Life. "There is no way it could last to the next general elections or avoid a very serious political crisis."

For Chirac, who is now paying the price of excessive campaign promises, the challenge is to win back public trust and persuade his countrymen to accept the kinds of sacrifices that no other peacetime leader has ever asked of them. That will require far better communications skills than his administration has thus far demonstrated. The President might start by dusting off--and taking to heart--one of his most effective campaign slogans: "Politics is not the art of the possible; it is the art of making possible what is necessary."

--With reporting by Bruce Crumley/Paris

With reporting by Bruce Crumley/Paris