He's described him as the "foreign leader who impresses him most." There's certainly no doubting how impressed Mr Sarkozy is with himself. Le Monde observed how he's using this job, as his last one, to build himself an international profile.

But the economy he's supposed to be in charge of is, to put it at its mildest, an enigma, reminiscent of nothing so much as Britain in the 1970's. Our Paris Correspondent Allan Little reported.

Watch the report

ALLAN LITTLE:
Don't be deceived by the tranquillity. In Dourdan class war has been raging. Organised labour has taken on free market capital. And won. The setting was a small British-owned fibre optics company with a French workforce of 15. They turned up for work one morning to find that the company had gone bust. The British management had shut up shop overnight.

PASCAL DAVID:
Former employee
(TRANSLATION)
I wouldn't say I was shocked. I mean it's 7.30am, and you're told it's all over. I was flabbergasted.

SYLVIE TREILLE:
Former employee
(TRANSLATION)
He said to me, "There's nothing left in the factory. They've taken everything. Say it's not true. Tell me it's not true," I said. I thought I was going to have a heart attack.

MICHAEL LORD-CASTLE:
Director, Insolvency Advisory Service
What we were doing was following UK legislation with a UK company and that was to shut down when we knew we could not afford to pay the creditors.

LITTLE:
The workers knew their French law and what they were entitled to.

SYLVIE TREILLE:
(TRANSLATION)
We're entitled to a written redundancy notice, a certificate of wage compensation. Plus, you should be given several months notice, a redundancy package and your last month's wage. We didn't get any of it.

LITTLE:
The case became a national cause celebre, all France railed against the smash and grab Anglo-Saxons who'd packed up and disappeared in the night. Government ministers denounced Britain's robber barons. The newspapers cried foul. One British manager ended up in jail as the country rallied to the cause of the wronged workers.

MICHAEL LORD-CASTLE:
The reaction was phenomenal. There was a protest march in Paris. To be honest we didn't know what it was protesting about. It went on from there. The media, the publicity, it came to a point on one particular day that we only came second to Al-Qaeda in media activity.

LITTLE:
This political involvement went all the way to the top?

MICHAEL LORD-CASTLE:
Big time. We had Jacques Chirac on public radio calling me an Anglo-Saxon thug.

LITTLE:
And of course French justice soon prevailed. The French authorities seized the company's equipment and sold it off to pay workers. The investors, who put up the cast to buy the equipment, got clobbered and lost the lot.

MICHAEL LORD-CASTLE:
If you're investing, you're looking for an asset that you can secure against. You cannot secure against an asset in France because it can be taken by the employees at any time. The employees are classed under French rules as super preferential predators.

LITTLE:
So you could lose everything?

MICHAEL LORD-CASTLE:
Absolutely everything. You could lose it overnight, at the whim of the union, at the whim of employees or whom ever.

LITTLE:
What advice would you give to somebody who was thinking of coming to France to set up a small or medium-sized enterprise here?

MICHAEL LORD-CASTLE:
Leave.

SYLVIE TREILLE:
(TRANSLATION)
We're still very bitter about the situation. We were very happy to be covered by French law. I am not against change per se, but you have got to respect employees' rights too.

LITTLE:
This was far more than an industrial dispute. It was a little clash of civilisations. France with its heritage of workers' rights and market regulation faced down free market Britain. Life is tough for small businesses in France. Here in Dourdan, they are closing down. Outsourcing is the new French obsession. France is losing out to countries where labour is cheaper and more flexible, where companies do not carry the burden of their workers' security and welfare. Unemployment in France is nudging 10%.

WILLIAM BLONDEL:
(TRANSLATION)
It's difficult to find work with all the companies that are laying people off these days. I've sent my CV around everywhere in Dourdan, but it really is closed. It's hard to find anything. You have to look much further afield.

LITTLE:
Ludvine Camus is also unemployed. But it doesn't keep her awake at night. For the last eight months, the state has paid her unemployment benefit at two-thirds her previous salary.

LUDVINE CAMUS:
We pay so much taxes when we work. We pay so much, so much. We - you never really understand why you pay until you have nothing left, and then they say, yeah, well, here you go. Here's a little treat. It's just - yeah, it's just a way for you to have time to look into something that's good and not doing just...

LITTLE:
Do you think France can afford this, to pay people 75% of what they used to earn?

LUDVINE CAMUS:
No, no, no, I don't think so.

LITTLE:
This is the great French headache, how to turn around an economy that's still top heavy, that's still dominated by the big state monopolies rather than a truly competitive private enterprise sector. That's resistant to the market, resistant even to change. It's true that the French enjoy a high standard of living. But their economy no longer generates enough wealth to pay for it all. The French are living beyond their means. France is running on empty.

The man who has to make France love change is Nicolas Sarkozy, who took over as finance minister last month. He inherits a state budget that for 23 years in a row has spent more than it's earned.

"So we must act" he said in his first speech in the job, "but that's not enough. We must act fast. I will fight on every front at the same time. And the most important front is Government spending."

ERNEST SEILLIERE:
President, MEDEF
We are poor. The French society is poor. The capitalism is a capitalism without money. I mean, what is taken from the French society because of the taxation and, of course, all the social contributions is the highest in the world. We have 52% of our wealth, which is taken by all these compulsory taxations and - and charges and which are redistributed, and this leaves very little money for large investments.

LITTLE:
Entrepreneur may be a French word, but the French taxation regime means that small businesses rarely grow.

ERNEST SEILLIERE:
You find entrepreneurs in France who have started a business. They are saying it's not worth going any further. My effort is not worth it because I will be taxed too much, and the difficulty is, if I grow my business, going to fall in a new set of social regulations, so you have a kind of tendency not to grow further than a certain level.

LITTLE:
It's not even as if France doesn't agree that radical change is needed. France has committed itself again and again to the idea of far-reaching economic reform. It just doesn't translate itself into action. The difficulty lies not with the French Left who are ideologically opposed to liberalisation, but with the strange paradox of the French Right. As one free-market reformer put it, "The problem with the leader of the French Right is that he's really a man of the Left." Jacques Chirac has inherited the mantle of De Gaulle. For the Gaullist tradition, the idea of national unity is paramount. At all costs, avoid social conflict. Nothing must be done that will divide the French against each other. Nicolas Sarkozy has been a Chirite prot�g� for 25 years. Their relationship has been that of a father and son: passionate, intimate, demanding.

JEAN PROBST:
Friend of Nicolas Sarkozy
(TRANSLATION)
From the start, there was something different about him. I mean, there was his outstanding ambition, his energy, his capacity for work and his determination to travel faster and higher than everyone else. That's what sets him apart from other Gaullists.

LITTLE:
And that is what has made Chirac deeply suspicious and even, some say, afraid of the young man he once championed. Sarkozy has made no secret of his desire for the top job. Can you imagine Gordon Brown answering this question in this way?

INTERVIEWER
(TRANSLATION)
When you're shaving in the morning, is it true all you can think about is the next presidential election?

NICHOLAS SARKOZY:
(TRANSLATION)
Not only when I am shaving.

LITTLE:
So is it to reward his talents that Chirac has given Sarkozy the most difficult job in government, or is it to rein him in?

Sarkozy inherits an economy that has begun to change, albeit slowly. The French power company Electricite de France or EDF advertises its services on television. It hardly needs to. It is still a monopoly supplier and state owned. But under EU rules, the big state monopolies are being forced to open themselves gradually to competition. Charles Begbede is about to exploit that change. He's set up his own private electricity supply company. New rules allow him to buy power from the grid and sell it on. He says he can undercut EDF by up to 10%. He believes it's the first cautious step on the road to a real free market in energy.

CHARLES BEGBEDE:
Director, POWEO
We will also cut the cord between the state and EDF and Gas de France, even if they are still majority owned by the state, it's not the same, is very different.

LITTLE:
So in England we call this backdoor privatisation. Is that what this is?

CHARLES BEGBEDE:
No, but - this is probably too strong an expression, but it's a first step for - leaving those two firms independent.

LITTLE:
So what you're saying is the project is privatisation, but it won't happen overnight. It's going to be done step by step and in a way that enables the Government to bring public opinion along with it.

CHARLES BEGBEDE:
Oh, yes, it's just impossible, with the opinion, with the demand. These firms are very popular. They are also comprising hundreds of thousands of employees. The unions are very strong. They are heavily financed by those firms, by the way. It's very politically dangerous to be too brutal.

LITTLE:
Privatisation is not a word the government likes to use out loud. It doesn't take much to get the people out onto the streets.

PIERRE KHALSA:
Trade Union Leader, SUD
(TRANSLATION)
We think that liberalising the economy has been negative. It's reversing social rights. Poverty is increasing. There's higher unemployment, even though at the same time, the nation's wealth is increasing. France is much richer than it was 20 years ago, but the French people are not. Only businesses get wealthier. We think that's what needs changing.

LITTLE:
Sarkozy has an eye for the camera, an instinct for winning public approval, even affection, but there is something Shakespearean in his naked ambition, in his desire to be President, in the menace that that now poses to Chirac.

NICOLAS DOLMENACH:
Editor, 'Marianne'
(TRANSLATION)
The king has never been killed before except by the French people. The French killed their king, and they have always felt little remorse. That's why they created a monarchical republic, and in that republic, a baron that rises up to kill the king will not be tolerated by the people.

Sarkozy's challenge is to impose on the French people painful reforms without losing the popularity he has spent his life cultivating. Perhaps it's impossible, and perhaps that's why he's been given the job.

This transcript was produced from the teletext subtitles that are generated live for Newsnight. It has been checked against the programme as broadcast, however Newsnight can accept no responsibility for any factual inaccuracies. We will be happy to correct serious errors.