Daily Archives: November 26, 2012

A recent survey by the French Institute of Public Opinion (Ifop) showed that 68 per cent of the French are pessimistic about the future, a record for this early in a new presidency. This does not mean that France has become a dismal country to visit: the French rather enjoy gloom. They even have a word for it – morosite – which has no easy equivalent in English, though the sense is clear.

But while it is quite acceptable in Paris for a resident to be pessimistic, indeed it is almost de rigueur, the same indulgence is not granted to foreigners. The French have spent the last weeks shooting messengers. The rot set in at the end of October when the German news magazine Bild asked pointedly if France is about to be the new Greece. An Economist cover story described France as a time-bomb ticking at the heart of Europe. Then, to add insult to injury, Moody’s downgraded French debt, and left the country on negative watch.

This outbreak of Anglo-Saxon hostility has caused a degree of circling of wagons. The Prime Minister, Jean-Francois Ayrault, talked of sensationalism and the desire to sell papers. The right-leaning Le Figaro, no friend of President Hollande, the main target of the Economist article, charged the British press with “le French-bashing”. (The Financial Times is seen as an enthusiastic fellow-traveller of The Economist in this regard).

In fact the English language press is saying nothing that has not been said, more elegantly, and with more supporting analysis, by the Cour des Comptes, the French National Audit Office (though that pedestrian English term does not quite convey its grandeur) or in a report on competitiveness by Louis Gallois, the former boss of the European defence group EADS. Mr Gallois’ report raised the alarm, pointing in particular at high employment taxes and inflexible labour markets as impediments to growth.

But the recommendations, from a man with centre left credentials, were – to Anglo-Saxon eyes – a strange mishmash. He argued for a cut in labour taxes, funded by increased VAT, and some modest legal changes, but balanced by a set of measures to promote what we would call “industrial democracy”, with greater staff representation on works councils, whose impact on competitiveness is unclear and highly indirect, at best.

In response, the government set out a “competitiveness pact“, which included a promise to implement some of his 22 ideas. But French employers were underwhelmed, and it is unclear how committed the other social partners are to the pact. In any event, it is hard to see that it amounts to a Copernican revolution, as Finance Minister Pierre Moscovici characterised it. French policy remains built on an assumption that the sun will continue to circle France, and that investors will continue to look benignly on the state’s 56 per cent share of the economy.

So far, they are right. Markets have not reacted to the Moody’s’ downgrade: French borrowing costs remain very low. In relative terms, French credit looks secure. Though there have been rumblings from across the Rhine from German economists, and possibly from Finance Minister Wolfgang Schaueble himself (though that is denied) about France’s declining competitiveness, and unsustainable labour costs, the Germans still have greater worries further south, and no incentive to upset the applecart by questioning the soundness of their biggest partner.

Perhaps we should conclude, then, after a few weeks of Gallic angst, that it has been much ado about nothing, and all’s well that ends well. Life can go on as normal for the Normal President.

Perhaps, but the facts are inescapable. French unit labour costs have risen by 20 per cent more than German since the launch of the euro, and there is no sign of a change of trend. France’s public spending remains well above the EU norm, even five percentage points above Sweden’s. A present day Shakespeare might produce a bittersweet comedy under the title “If a thing can’t go on for ever it will probably end one day”. That day could dawn with little warning.

Below the surface, there are worries. At a dinner in Paris last week the conversation turned to the interesting question of who the French Mario Monti would be if a government of national unity were needed there. Pascal Lamy was the answer, now happily “au dessus de la melee” (above the battle) at the World Trade Organisation in Geneva. He knows the geography of the prime ministerial offices at Matignon quite well. Mr Ayrault should beware.

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