18 June 2014

France becoming new sick man of Europe


France’s economic and financial ills are well-known: unemployment at over 10% and rising; a stagnant economy with growth predicted to be less than 1% in 2014; a slump in consumer spending; government expenditure at 57% of GDP; a budget deficit that shows no sign of coming down or of meeting EU targets; an inflexible labour market.

If we look beyond these headlines there is no shortage of further evidence to confirm a worrying picture. Recent figures suggest that 22% of young people under the age of 25 had not found a job three years after leaving school or college.

If today France remains the world’s largest wine exporter, it now stands behind Italy and Spain as a wine producer. Le Monde revealed two weeks ago that an increasing number of the chief executives of France’s leading companies are living outside the country. Neither the companies concerned nor the government were eager to advertise the fact.

A study published this month also indicates that generational inequality is higher in France than in any other developed economy. Following lower tax receipts than expected for 2013, in late May the government was forced to admit to a black hole of 15 billion Euro in its finances.

In the wake of this announcement, the French equivalent of the UK’s Office for Budget Responsibility cast doubt on the “sincerity” of the government’s future projections for the public finances.

To make matters even worse, France now looks to be entering a period of industrial unrest. As I write, French railway workers are undertaking their second week of strikes in protest at planned reforms to the organisation of France’s rail infrastructure, bringing widespread chaos and disruption.

Staff at French branches of the supermarket Lidl recently went on strike in a dispute about their conditions of work. This followed a similar strike by workers of the Auchan supermarket chain. The world-famous Avignon Festival, due to start in early July, faces cancellation because of the threat of strike action by what the French call “intermittents du spectacle”, part-time actors and technicians who enjoy a special status under French law. The government fears more disputes in the autumn.

Moreover, the French public do not appear to be in a forgiving mood. Opinion poll after opinion poll shows that the French – despite their many undoubted blessings – are the most pessimistic of Europeans when it comes to thinking about their future. Their views on politics are not much more cheery.

A poll published one week before the European elections showed the highest levels of dissatisfaction with the European Union ever recorded. 54% of those interviewed thought that the Euro was more of a disadvantage than an advantage for France and 43% saw the EU as a threat to French national identity. Only 39% thought that French membership of the EU was a “good thing”.

The principal beneficiary of voter disenchantment has been the Front national led by Marine Le Pen. It is no exaggeration to say that the FN’s triumph in last month’s European elections was a political earthquake of massive proportions.

Not only did Marine Le Pen’s party top the national poll with over a quarter of the votes but the Parti socialiste of President François Hollande received less than 14% of the vote, its lowest score for over fifty years. The Left as a whole secured less than one vote in three. No President of the Fifth Republic has ever recorded such a low level of electoral support.

Some of the statistics that lie behind these voting patterns are quite remarkable. For example, 43% of manual workers and 37% of the unemployed who cast their vote did so for the FN against 16% and 14% respectively for the Socialists.

How, if at all, can the socialist President Hollande respond? First, we should remember that the constitution General de Gaulle was wise enough to give his unruly compatriots was designed precisely to protect the position of the President. Hollande might resign (itself very unlikely) but he cannot be removed.

However, given his unpopularity, can Hollande govern? In particular, is Hollande in any kind of position to bring about the economic and budgetary reforms that even he now realises must be achieved?

Following the disastrous performance of his party in this spring’s municipal elections, Hollande had no choice but to reshuffle his government. His new Prime Minister, Manuel Valls, is both popular – as Minister of the Interior he took a tough line on illegal immigration – and able, and he seems genuinely committed to reform.

But his plans to cut public spending and reduce tax on business face enormous hostility from the ranks of his own parliamentary party and look likely to be approved, if at all, only with the support of the opposition.

Meanwhile his Minister of Industrial Renewal, Arnaud Montebourg, faced with the threat of a takeover of French company Alstrom by General Electric, has introduced a decree strengthening the ability of the French State to veto foreign takeovers in key sectors of the economy, including energy, transport and telecommunications.

“It is the end of laissez-faire”, he said in an interview last month. Montebourg is by no means alone in advocating a retreat into protectionism.

It is then not impossible that the Parti socialiste will fragment into many competing factions. This week Prime Minister Valls warned his colleagues that socialism “could die” if they did not embrace reform. Nor can François Hollande be sure that he will be chosen as his party’s candidate in the next Presidential election.

Things look little better on the Right. François Copé, leader of the UMP, was forced to resign last month as he is under police investigation for financial irregularities associated with what is known as the “affaire Bygmalion”.

The party is now headed by a triumvirate comprising former Foreign Secretary Alan Juppé and ex-Prime Ministers Jean-Pierre Raffarin and François Fillon. Months of intra-party wrangling look likely. Everyone is waiting to see what the next move of Nicolas Sarkozy will be.

So for now Marine Le Pen rules the roost. And no one should underestimate her determination or doubt the popularity of her party with the French electorate.

France is in trouble. And a dysfunctional political situation makes it highly unlikely that the deregulatory reforms needed to rescue its economy will be delivered any time soon.

Jeremy Jennings is Professor of political theory at King's College London.