The French government’s backdown last week on its youth employment law was every bit as humiliating as the pessimists said it would be. The students and unionists who had demonstrated against the law were handed a complete victory on Monday when president Jacques Chirac announced that the law would be repealed. It was small consolation for the government that a victory march held by the students the following day was poorly attended.

Background to the dispute over the first employment contract (CPE), like most else in France today, is the presidential election to be held in just over a year’s time. Chirac, after two terms, will not run again (although he is yet to announce the fact), so the contest is wide open – for the nomination on both sides, as well as the verdict between them.

Front-runner on the centre-right is Nicolas Sarkozy, interior minister and party president of Chirac’s party, the UMP. His relationship with Chirac has been difficult at best ever since they fell out over an earlier presidential contest in 1995. Chirac instead has promoted Sarkozy’s rival, prime minister Dominique de Villepin. But the CPE was de Villepin’s pet project, and its failure has done major, possibly fatal, damage to his prospects. It seems that Chirac may be coming to the pragmatic conclusion that Sarkozy is the only one who can beat the left next year.

The polls certainly bear that out. Last Friday in Le Figaro, people were asked whether various political figures had been strengthened or weakened by the CPE affair: Sarkozy was the only one on the right whom a majority (55%) thought had been strengthened. Eighty-eight percent said Chirac had been weakened, 89% de Villepin. And when the same poll asked whether the same figures inspired confidence in their ability to take the economic reforms that France needs, the only two with positive scores were Sarkozy (49%) and the front-runner for the Socialist Party nomination, Segolene Royal (59%). Another poll, reported in Le Monde, showed Sarkozy narrowly trailing Royal in voting intention, 47% to 52%.

In other words, in a general rout for the UMP, Sarkozy has been the only one to emerge with much credit. And since Sarkozy and Royal are both seen as toward the right of their respective parties, it is too simplistic to say that the retreat on the CPE has been a defeat for economic reform.

Le Monde also reported that at a meeting last Tuesday, Chirac was over heard saying to Sarkozy “Merci, Nicolas, pour ce que tu as fait” (“thank you, Nicolas, for what you’ve done”, although the informality of the French “tu” is part of the point). It might seem an odd thing to say about a minister conspicuously distancing himself from a controversial government measure. But if the outcome of the CPE crisis is a genuine rapprochement between Chirac and Sarkozy, then the French right cannot yet be written off.