What does the future hold for France?

One of the euro zone’s biggest economies has 11 per cent unemployment, falling exports and significant budget deficits. How can the French turn this around?

 

Of the many insults levelled at France’s tax-and-spend policies, it is the cruellest. The phrase “sick man at the heart of Europe” was coined for the Ottoman Empire in the mid 19th century. In the 1970s it was applied to Britain, and in the 1990s to Germany. Now liberal economists are saddling France with the label.

Other European economies have been battered harder by the crisis. But as one of two big economies in the euro zone, France’s 11 per cent unemployment rate, stagnant growth, falling exports and investment, flagging competitiveness and budget deficits are of particular concern to its European partners.

The symptoms of France’s malady are a slow and painful draining of energy and a withering of body and spirit. When I asked at a Paris dinner party what the future held, it was as if I had cracked a bad joke. My question elicited nervous laughter.

“There’s a spleen in France,” minister for the budget Bernard Cazeneuve admitted recently, using Charles Baudelaire’s term for melancholy. Cazeneuve quoted the poet’s description of “the low and heavy sky, weighing like a lid” over France.

To paraphrase a Leonard Cohen song, the French have seen the future, and it’s murder. Although the government has resisted cutting public spending, the citizens know their comfortable lifestyle is doomed. They’re already being strangled by tax increases.

“The fundamental thing that breaks confidence is, in my opinion, that no parent now believes their children will be happier than they were,” says the historian Mona Ozouf. “That held the country together. You can make people swallow sacrifice only if they believe it’s for the sake of progress.”

In a survey commissioned by the government on France in 10 years, 92 per cent of respondents said they were pessimistic or very pessimistic. Three-quarters of those questioned for a recent poll said France was in decline. Two-thirds said that it was a crisis without precedent and that it would be difficult to get out of it without profoundly reforming the country. Yet France seems more prone to revolution than to reform.

The French public-sector bill now represents 57 per cent of GDP, the highest in the euro zone. Economists say the government needs to cut public spending by €15 billion a year. It has given no indication of how it will do so.

“The French people don’t give a damn about urgency,” jokes Hubert Védrine, a former French foreign minister who is writing a book about the difficulty of reforming France. “The rich don’t want to give up their privileges. The poor don’t want to give up their privileges, either. There’s a whole culture that goes against it.”

French leaders are haunted by the memory of December 1995, when the then president, Jacques Chirac, and prime minister, Alain Juppé, tried to reform the pension system, including the sweetheart deals, known as régimes spéciaux, for transport workers .

“The public supported the reform,” Védrine says. “But there were weeks of strikes. Chirac and Juppé had to give in. Ever since, French presidents have been terrified of strikes and demonstrations.”

“We were spoiled after the second World War,” says Emmanuelle d’Achon, who was until recently the French ambassador to Ireland. “We grew accustomed to being rich, and now that the European crisis has occurred we must reform. The French say, ‘It’s good for others to change; not me.’ ”

The Last Spoilt Children in Europe is the subtitle of Sophie Pedder’s book, French Denial. Pedder, the Paris bureau chief of the Economist magazine, says France won’t face up to the need to adapt its social model to its financial means.

Social acquis, or acquired rights, were accrued over decades, sometimes centuries. Merely questioning an acquis is considered “social regression”. Ozouf quotes the 19th-century philosopher Charles Renouvier: “For the French, anything that is not ideal is abject.”


Failed companies
Meanwhile, 62,500 French companies failed this year. In recent weeks Mory Ducros, France’s second-largest logistics company, filed for bankruptcy, with the loss of up to 7,200 jobs, because Polish lorry drivers are working for a third of French wages. The Gad pork-processing plant in Brittany shut down, with the loss of 900 jobs, because it was cheaper to send animals to Germany for slaughter.

There was something particularly poignant about the closure of the Pleyel piano factory in Saint-Denis. The world’s oldest piano manufacturer, founded in 1807, made pianos for Frédéric Chopin, who promoted the brand and received a share of its profits. The government even gave Pleyel the status of a “living heritage enterprise” in the hope of keeping it alive. But Pleyel couldn’t compete with well-made, inexpensive pianos from Asia.

The most charitable reading of France’s immobility is that it refuses to join the race to the bottom by attempting to compete with wages in countries such as China. “France is still better off than a lot of others,” says a French colleague who lost his job this year. “Our deficits aren’t that high. We have universal health coverage, and we don’t sell weapons in our supermarkets.”

The same colleague referred to a recent blog by the Nobel economics laureate (and Irish Times columnist) Paul Krugman. France is a “moderately troubled nation”, Krugman wrote, but it didn’t deserve a downgrade of its credit rating in November, nor the criticism heaped on it by British and US media. France’s sin, in Krugman’s eyes, was to violate liberal orthodoxy by prioritising tax hikes over cuts in social benefits.

And what tax hikes: 84 new taxes, representing €41 billion, in the first year of the Hollande administration, according to Le Monde. France’s wealthiest citizens are decamping to London and Brussels. Eighty per cent of university graduates say they want to work abroad. Tax centres this month reported a rise of 15 to 20 per cent in applications for extended deadlines. Because excessive taxation sucks money out of the economy, the saying goes, too much tax kills tax. Sure enough: the government will take in €11 billion less than expected in 2013.

French governments long assumed that taxation was an inexhaustible resource. The French now seem to have reached their limit. Faced with opposition, in October Hollande abandoned three new taxes: on companies, life insurance and lorry traffic.

Another French saying, Why do simple when you can do complicated?, could be Hollande’s motto. In October last year he announced €20 billion in tax credits for businesses, known as the CICE. Hollande wanted to reduce payroll charges, but that would have sparked anger on the left. Instead he financed the tax credit with a VAT hike that will take effect on January 1st.


Where are the billions?
French taxpayers are asking where the billions are going. “Government spending went from 52 per cent to 57 per cent of GDP in five years,” says Denis Payre, a technology multimillionaire who recently founded a party, We Citizens, to demand government reform. “That’s €120 billion in extra spending,” Payre says. “We don’t know what for.”

Payre cites France’s education budget as a prime example of the scourge of “an omnipresent state that tries to resolve every problem through direct intervention”. France spends €85 billion annually on education; €35 billion more than Britain and Germany, which, like France, have 10.5 million students. Yet Germany pays its teachers 30 per cent more than France does.

Minister for education Vincent Peillon was asked on France Inter radio why France spends more on and gets less from its education budget. It was, Peillon said, “a false debate”.

The OECD had just announced the results of its Pisa tests, which measure the standard of learning of 15-year-olds in 65 countries. France fell from 22nd to 25th place. Worse still, France was ranked the least egalitarian educator among developed nations.

“When one comes from a disadvantaged background [in France], one has fewer chances of succeeding than in 2003,” the OECD said. Denouncing France’s elitist culture, numerous commentators recalled that the word “égalité” figures in the country’s motto.

Nor did it escape notice that Germany, which suffered its own “Pisa shock” a decade ago, has powered itself ahead of France to 16th place.

French politicians have been obsessed with Germany since starving Parisians ate cats and rats during the Prussian siege of 1870. The current disparity in Franco-German fortunes is taking its toll.

The provocative historian, political scientist and demographer Emmanuel Todd says France and Germany are at war again. Europe was built on “this idea that if France and Germany could get along, everything would be fine for everyone on the continent”, he says. Instead, German reunification and free trade have transformed Europe into an unequal hierarchy, with Germany at the top.

The standard line that European integration has prevented the reoccurence of war in Europe has become meaningless, Todd says: “This is war – economic war.”

Jonathan Story, professor emeritus of political economy at INSEAD, the international graduate business school in Fontainebleau, says he “always held the view that Franco-German relations in Europe are a continuation of war by other means”.

France wrongly believed that monetary union would throttle German ambition, Story says. “The bottom line is that Germany got its act together while France went to sleep because it had the euro . . . Now the French are stuck with Germany dictating to them.”

People on the French left dream of making Germany more like France, while people on the right dream of making France more like Germany. In the national assembly on November 26th, prime minister Jean-Marc Ayrault lauded Germany’s adoption of a minimum wage.

“When some of our businesses are in competition with companies that pay €3 or €4 an hour, how do you expect us to be competitive?” he asked, adding that Europe must mean “co-ordination of social policies, not downward but upward”.

Economic liberals want France to enact reforms comparable to those made by the then chancellor, Gerhard Schröder, a decade ago. “The hypothesis of French elites is that French people can become Germans,” says Todd. “That’s not possible.”

Nor is the French socialist party, PS, likely to follow the path of the German social democratic party, SPD, cautions Hubert Védrine. The PS was far more influenced by Marxism than its German counterpart. “The French think globalisation happened at their expense, in English, on the basis of the reduction of the state, and fierce competition. It’s hard enough for the French to accept the market economy, which they see as a jungle.”

The French economic research centre Rexecode says German companies are four times more profitable than their French counterparts. “Germany is winning, as usual,” Todd says. “Germany’s destiny is to affirm its superior technical efficiency . . . This will end in disaster for Germany, because they’re fragile demographically and they’ll end up being hated by the whole continent. The French will have annoyed a lot of people, but no one hates us.”

Amid such monumental questions about the fate of France, Hollande seems invisible and inaudible. Ségolène Royal, his former partner and the mother of their four children, once said that in 30 years of conjugal life Hollande never took a tough decision.

Virtually everyone interviewed for this article agrees on two things: that the French economy would take off if the government had the courage to enact real reforms; and that the country’s biggest problem is the absence of leadership.

That may explain why the fighting spirit has gone out of France, and why there’s so much nostalgia for two great 20th-century leaders, Charles de Gaulle and Georges Clémenceau, both of whom led France during times of war with Germany.

Politicians of every stripe flocked to de Gaulle’s home at Colombey-les-Deux-Églises on November 9th, the 43rd anniversary of his death.

French television recently broadcast a two-hour documentary on Clémenceau, the “Father Victory” who shepherded France through the first World War. In the most powerful scene, Clémenceau, by then in his mid 70s, jumped out of a trench under shellfire. Shaking his fist at German lines, he shouted, “On vous aura. On vous aura.” We’ll get you.

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