French exceptionalism may have run out of time


By George Kerevan
YOURS truly is on holiday in the French countryside, a little west of Toulouse. This is the land of foie gras, the Three Musketeers, bullfighting, and EADS/Airbus.
Judging by the local press, the French are behind the proposed merger of EADS and BAE Systems, to create the world’s biggest aerospace contractor. It remains to be seen if that can be said of the US administration, which remains wary of the extent to which French governments retain a proprietary interest in directing domestic industry.

This week, headlines in the French media have centred on the wave of industrial restructuring now being forced on France by the global economic crisis. Unemployment has just breeched 10 per cent, double that of Germany, with which France likes to compare itself. The reason is not hard to detect. Since the turn of the millennium, French unit labour costs have jumped by 28 per cent, but by only 8 per cent in Germany.

This is a homemade crisis quite distinct from that of the euro. It has its roots in the very French sense of solidarity which imposes huge taxes and social security burdens on business. In return, it must be said, French consumers and public bodies buy French. This implicit protectionism has ensured that higher costs in France are offset.

And while French governments (right and left) have interfered cavalierly in industry, they have also turned a blind eye to private monopoly and questionable business dealings. France is not short of millionaires.

However, the time for French exceptionalism is running out. The car industry is plagued by overcapacity, which has forced Peugeot and Renault to attempt rationalisation. With car sales down, there is less need for steel, so ArcelorMittal is trying to shut its loss-making Florange plant.

Result: massive pressure on the new Socialist administration of Francois Hollande to halt the redundancies.

For someone from the UK, the public mood feels like the 1970s. Hollande promised to stop the “attack on French jobs” during his campaign. There is much talk of “fining” companies who switch production abroad.

Hollande has even appointed a minister with the portfolio of halting industrial closures. He is Arnaud Montebourg, who has Holywood movie star looks and is famous for writing a book demanding “deglobalisation”. Montebourg has been on the tele every night this week addressing adoring trades unionists, telling them he will save their jobs.

A kilometre from the threatened ArcelorMittal plant, Tata is producing rails for France’s TGV railway with steel imported from… Britain.

When the Brits can export steel cheaper than the French can make it, the game is up for Gallic exceptionalism.

After Athens and Madrid, riots in Paris?

This week the eurozone crisis returned to the streets of Spain and Greece. Meanwhile in Paris, president Hollande has promised his eurozone partners he will cut the French budget deficit from 4.5 per cent of GDP to 3 per cent. He needs to. French national debt is a stunning 92 per cent of GDP.

However, yesterday’s budget attempted to balance the books by raising taxes rather than cutting spending, in a 2:1 ratio. This is precisely what the UK tried: frontloading tax rises (VAT) and leaving unpopular cuts till later. The theory was that the economy might recover enough to make the deepest cuts unnecessary. It didn’t happen in Britain and it won’t happen across the Channel. Instant tax rises will stall growth and send young French professionals to London

Next year French workers will be joining the Spanish and Greeks in the streets.

But there is still a sense of community

Lest I mislead you, there is still much to admire in the French economy. Driving south from Paris you pass through dozens and dozens of prosperous looking towns. In Scotland, there would be empty shops by the score, signalling recession and a lack of interest by the town council. Or parades of charity shops disguising a lack of genuine business.

French success in maintaining a thriving local retail sector is commendable.

It’s partly down to consumer sentiment. Partly to more benign business rates. Partly to stricter planning regulation.

And finally, perhaps, to the fact that business people still stand for (and get elected to) the local council. However it’s done, we need more of it in Scotland.

Courtesy of George Kerevan and the Scotsman newspaper