Tuesday, March 13, 2012

France's Presidential election wont save the French from themselves

Politically France is more of an enigma than many will think. It could be said to be the cradle of democratic socialism in the Western world. With a ridiculously generous welfare state (unemployment benefit is paid at 70% of the salary of the previous job), spending over 28% of GDP on welfare, a relatively interventionist industrial policy and retention of state owned companies operating major services, it is seen by many on the left as a model. 

France of course has also long been at the vanguard of support for closer European integration. Its unalloyed support for the European Union would suggest that the people of France regard it as critical to their economic future. Yet the truth would appear to be a bit more subtle than that. Whilst the Common Agricultural Policy gives France 10 billion Euro a year in subsidies for its farmers (and indeed it was creation of this policy that was critical to France delaying the UK’s entry into the EEC – because France wanted Europe to pay for its own ruinous subsidy scheme), French voters clearly have mixed feelings about the EU. The main selling point of the EU to them has been a fortress Europe mentality. EU laws to set minimum employment standards, to regulate competition and to keep out imports and foreign competition are what they want. Compare that to the UK which has seen the European project as one about lowering borders between countries and liberalising markets.

Indeed it is this clash of ideologies that is at the heart of the European project battles. Guess which view took hold in Greece, Spain, Italy and Portugal. Late last year France briefly looked like it might fall victim to the sovereign debt crisis, but austerity measures were introduced that bear little resemblance to those elsewhere. It almost entirely involved raising taxes, and French voters hardly blinked. Indeed, the socialism ingrained in French popular thinking has been seen in the popularity of the socialist candidate for President, Francois Hollande, who has sought to bribe voters with more welfare, earlier retirement, more subsidised jobs all paid for by higher taxes (top rate of 75%!) and the tooth fairy of future sovereign debt default paid for by German taxpayers. The reality evasion has been delusional, but he has been ahead. Until now. 

Whenever anyone blames the US for a lack of political sophistication, they should pause for a second. For what else can explain the sudden rise of Nicolas Sarkozy in the opinion polls, as he switched tack so profoundly and cynically it would destroy a similar politician elsewhere. An objective view of Sarkozy is that he has been, by and large, a status quo President. He did undertake some modest reforms around pensions, but by and large has made little effort to reform the French socialist state. His largest profile has been in supporting the revolution in Libya, in banning the niqab and his partnership with Angela Merkel in dragging out the Eurozone crisis. However, he found new life in campaigning as if he wasn’t President, but a new candidate. 

His new policies include:
 - Withdrawing France from the Schengen agreement (which means France has no controlled land borders) if other members did not adequately control illegal immigration; 
- Saying there are “too many foreigners” in France, demanding immigration be cut from 180,000 a year to 100,000 (which of course France can’t control whilst it is in Schengen); 
- Demanding a “Buy European Act” requiring EU governments to buy EU goods and services, and if not agreed he’d establish a “buy French Act”; 
- Opposition to halal meals at schools or swimming pools having separate hours for men and women to meet demands of Muslim users; 
- Demanding all kosher and halal food be labeled so consumers can avoid it if they wish.

 In short, he is seeking to take votes from ultra-nationalist candidate Marine Le Pen, who believes in strong state ownership of strategic businesses, radical protectionism, withdrawal from the Euro, boosts for subsidies for French business and agriculture, a looser EU, withdrawal from the Schengen area, a moratorium on immigration, withdrawal from NATO and a closer relationship with Russia. The result, he is now ahead in the polls. Let’s be clear, he can’t implement most of what he said without effectively withdrawing France from key EU provisions on freedom of movement and open markets. So if he is re-elected, he wont actually do most of this. France wont leave the Schengen area and France wont be able to introduce a “buy European” law, because it will be opposed by Germany and the UK. However the support gained for a “fortress France” suggests that even French voters are not too warm to the EU. 

What is most striking though is how French voters are not as cynical as one would have hoped. Sarkozy could have held these positions for years and could have done something about it. He didn’t, and now he is remodeling himself to be the nationalist “with reason”. Presuming it will be him up against Francois Hollande, it is clear neither has any solutions to confront France with its decades of reality evasion. For France’s economy remains anaemic, its best and brightest leave because of taxation.

Its much vaunted manufacturing sector is, in fact, no bigger as a proportion of GDP than manufacturing in the UK (the difference is UK manufacturing largely involves rather smaller firms, with a few exceptions, whereas France relies on larger firms with high profiles). Meanwhile, public debt in France is creeping ever higher above 85% of GDP, and France has not had a budget surplus for over 30 years. For all of the Airbuses (which are propped up by the EU and have a significant part of their componently manufactured in other countries), TGVs, Renaults, nuclear power plants and armaments, there are precious few service industries that export and few IT startups. 

France may provide final assembly for nearly half of the world’s jetliners, make some trains and cars, weapons and satellites, but in all but one of those markets, it faces serious competition in export markets. Meanwhile, its own media is gagged by laws on privacy that make it difficult to take on politicians, despite the extraordinarily lavish lifestyle and corrupt practices that appear to be the norm at the top. France’s socialism does have a semblance of the totalitarian personal aggrandisement of Marxist-Leninist regimes. 

Ultimately, when France faces reality it will probably be overwhelmed by a belief that it is capitalism and free markets that have brought the country down. It will seek to demand the EU save it, somehow, by shaming the Germans into thinking they owe France because of the war. It will dabble with the idiocy of economic nationalism, and find it sliding further into stagnation. France wont abandon the EU, because no politician has the courage to take on the lobby of the largest group of corporate welfare parasites in the EU – French farmers. A group French taxpayers can’t afford to prop up on their own. The question French voters ought to be answering is this. Do they vote to hurry along this inevitable confrontation with the unsustainability of French socialism, by voting for Mr. Hollande? Or do they keep it decaying at a steady pace with Mr. Sarkozy? 

In either case France's future looks like Greece does now.  I suspect by then that Germans will be rather fed up being made to feel guilty for a war that none of them remember, and which they have long expressed penance over.   They also wont think their own taxes should go to pay for a country that has stubbornly resisted restructuring, true austerity and liberalisation for far too long.

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