NEXT to the turmoil and rage on the streets of Athens and Madrid, the anti-austerity manifs this weekend in Paris were pretty tame. In the first demonstrations against the Socialist president, François Hollande, a few tens of thousands marched peacefully. No barricades were erected, no cobblestones hurled. France, the euro zone’s second-biggest economy after Germany, has so far been spared the social upheaval—as well as the austerity—that has marred the battered periphery. Yet France has grave economic woes of its own. Unless Mr Hollande takes courageous steps this autumn to resolve them, he risks undermining the currency area’s very core.

France is a large, rich country and the world’s fifth-biggest economy. Although one credit-rating agency has stripped it of its triple-A status, its borrowing costs have fallen to historic lows. Household debt is modest. Per hour worked, French employees are productive. A high birth rate gives France a long-run advantage: in the next 25 years its population could even overtake Germany’s.

Yet two underlying weaknesses hold France back. One is a chronic inability, in good times as well as bad, under left as well as right, to bring down public spending. This now accounts for 57% of GDP, more even than in Sweden. France has not balanced a budget since 1974, and its debt, which finances all those splendid public services and an army of staff to provide them, has now reached 91% of GDP. The other weakness is a competitiveness gap that has opened up over the past decade with Germany. This is chiefly linked to rigid labour-market rules and payroll charges on employers, which between them keep labour costs high and deter job creation.

The upshot is that France has not generated enough wealth to pay for its lavish public spending. The French economy has stalled. Unemployment has passed 3m, or over 10%. And businesses are wary. PSA Peugeot has announced the first closure of a French car factory for 20 years.

The good news is that Mr Hollande and Pierre Moscovici, his finance minister, have at last woken up to the need to act. They understand that France’s credibility is at stake, and on September 28th unveiled a tough budget for 2013 that sticks to their commitment to reduce the deficit to 3% next year—and this despite discontent on the left over the budgetary constraints entrenched by Europe’s new fiscal treaty (see article).

The bad news is that more is needed. The government’s sums add up thanks only to over-optimistic growth forecasts, implying that the 3% deficit target may well be missed after all. And two-thirds of the €30 billion ($39 billion) of savings come from tax increases, including a new 75% top income-tax rate. Far better to insist on spending cuts, which do less harm to growth. France is already heavily taxed, and risks deterring its entrepreneurs with an increase in the charge on capital gains. More should be done to squeeze public spending; efficiencies could be found without salary or benefit cuts à la grecque.

More important, France requires a competitiveness shock to relaunch investment and growth. It should lighten payroll taxes (VAT or green taxes would do less harm) and loosen labour-market rules to give employers more flexibility over hours and wages in a downturn. The crisis has at least put such questions, once taboo, on the table: the government has given unions and bosses three months to discuss a deal. Mr Hollande argues that he does not want to ram change through. But he now must make the case for reform—in so far as he believes it—to confused voters, especially because his presidential campaign did not remotely prepare them for the effort.

The shock is yet to come

This is a critical moment for France, and also for the euro zone. Unless France restores its economic strength, it will be an enfeebled partner for Germany at a time when the two countries should urgently seek to work through their (many) disagreements. If France and Germany can settle on a deal for the euro, it will do much to bring stability to the currency area.

Mr Hollande has no excuses. The Socialists hold power at all levels, from the Senate and the National Assembly down to local government. He has little to lose, as he is already unpopular. And he is at the start of a five-year term, leaving time for his efforts to earn him an electoral payback. If Mr Hollande does not do the right thing now, he probably never will.