Mathieu von Rohr
June 5, 2013
France is in the grip of a crisis. As both its economy and European influence weaken, scandal has hobbled its political elite. The country needs drastic overhaul, but President Hollande does nothing but waver and hesitate.
Judging by the imperial magnificence of the Elysee Palace, France has never ceased to be a world power. Rooms with five-meter (16-foot) ceilings, gilded chandeliers, candelabras and elaborate stucco work are guarded by members of the Republican Guard, who parade in front of the palace gates with their plumes of feathers and bayonets.
The man in charge, on the other hand, seems lonely and small in his palace. He is surrounded by court ushers who make sure that glasses and writing sets are perfectly arranged, and when he enters a conference room, they call out grandly "Monsieur le Président de la République!", to give his attendants time to stand up for him.
François Hollande never intended to become a king, but rather a "normal president," as he put it, and now he has to play one nonetheless. He occasionally seems like an actor who has somehow ended up in the wrong play.
Outside, throughout the country, unemployment reaches new highs each month, factories are shut down daily, hundreds of thousands take to the streets to protest gay marriage, and the French are increasingly outraged over a barrage of new political scandals as the country hovers on the cusp of waning global relevance. Yet this roar of dissatisfaction doesn't permeate the walls of Hollande's world. Here, it is quiet, very quiet.
Shortly after moving into his new official residence, Hollande warned his staff that in a palace it is easy to feel protected, and he insisted that he did not want to be "locked in." But that is precisely what is happening, as evidenced by the documentary film "Le Pouvoir" (The Power), which recently debuted in French theaters and whose creators accompanied Hollande during the brutal first eight months of his presidency.
Elite in a Bubble
They paint an image of a likeable man who seems to spend a lot of time rewriting speeches prepared by his staff. As you watch him in the movie, you start to wonder: Does he do all the important things when no one's watching or does he really spends most of his time on the unimportant? However, the main subject of the film is not the president, but rather the reality bubble in the country's top echelons. Not just Hollande, but also most of his cabinet ministers, still reside in Parisian city palaces that predate the French Revolution, and perhaps that's a problem.
A justice minister who spends her days in the Hôtel de Bourvallais on Place Vendôme, next door to the Hotel Ritz, a culture minister who goes to work at the magnificent Palais Royal, a prime minister whose offices are in the grand Hôtel Matignon and a president who resides at the Elysee Palace, they all need a great deal of inner strength to avoid losing their connection to reality. It's a difficult proposition, because Paris's settings of power convey the message that France is big, rich and beautiful.
But the mood hanging over the country is depressed. France is in the midst of the biggest crisis of the Fifth Republic. It feels as if the French model had reached an end stage, not just in terms of the economy, but also in politics and society. A country that long dismissed its problems is going through a painful process of adjustment to reality and, as was the case last week, can now expect to be issued warnings by the European Commission and prompted to implement reforms.
France's plight was initially apparent in the economy, which has been stagnating for five years, because French state capitalism no longer works. But the crisis reaches deeper than that. At issue is a political class that more than three quarters of the population considers corrupt, and a president who, this early in his term, is already more unpopular than any of his predecessors. At issue is a society that is more irreconcilably divided into left and right than in almost any other part of Europe. And, finally, at issue is the identity crisis of a historically dominant nation that struggles with the fact that its neighbor, Germany , now sets the tone on the continent.
The French economy has been in gradual decline for years, without any president or administration having done anything decisive about it. But now, ignoring the problems is no longer an option. The economy hasn't grown in five years and will even contract slightly this year. A record 3.26 million Frenchmen are unemployed, youth unemployment is at 26.5 percent, consumer purchasing power has declined, and consumption, which drives the French economy, is beginning to slow down, as well.
There is a more positive side of the story, which sometimes pales in the face of all the bad news. France is the world's fifth-largest economy, and interest rates for government bonds have been at historic lows for months. The country is far from being on the verge of bankruptcy and cannot be compared with Italy or Spain, and certainly not with Greece. Nevertheless, France is ailing. And looking weak is something the French themselves hate more than anything else.
Consequences of French Decline
This mixture of factors could jeopardize the entire European structure. For one thing, if France continues to decline, more and more responsibility will be shifted to Germany. "Germany cannot carry the euro on its shoulders alone indefinitely," writes Harvard University economist Kenneth Rogoff. "France needs to become a second anchor of growth and stability."
Another problem is that the European Union is losing its standing in France at a more dramatic pace than in any other EU member state. According to a study by the Pew Research Center, the public approval of the EU in France has declined from 60 to 41 percent in only a year. This might be owed to the uncomfortable fact that Brussels is increasingly treating France as a problem and not as one of Europe's supporting columns, and many French citizens have started to see the terms 'Brussels' and (German Chancellor) 'Angela Merkel' as synonymous.
But is the EU to blame for the France's crisis? Can Europe truly be held responsible for the fact that the government is behind 57 percent of total economic output in France? That government debt has risen to more than 90 percent of the gross domestic product? Is it Germany's fault that, for decades, French administrations have failed to make the country's business environment more competitive? And has anyone in Brussels demanded that a fifth of all workers in France be employed by the government?
France may be ailing, but it still has a lot going for it. It is home to successful major corporations, such as the luxury brand group LVMH, tire manufacturer Michelin and many pharmaceutical companies. The country has an efficient healthcare system, the highest birthrate in Europe and healthier demographics than Germany, fostered by tax breaks for families, the acceptance of working mothers as a fact of life and a corresponding system of full-day childcare.
But the French welfare state costs money, a lot of money. The country has neglected to make decisions on how much its individual achievements are worth, and how certain luxurious aspects of life it has come to appreciate could be modified to conform to not-so-luxurious realities, including the 35-hour workweek, a retirement age of 60 for some workers and unemployment benefits of up to €6,200 ($8,122) a month. As a result, there is a sense of gridlock, and a sour public mood is following on the heels of bad economic news.
Stuck in Past Grandeur?
France has an illustrious past, of which it is justifiably proud, but its historic success also prevents it from clearly recognizing the need for reforms. The omnipotent, bloated central government, which also controls the economy, should have been reformed long ago. The privileges of the Paris political elite are so outdated that they have become intolerable, and many bribery and corruption scandals are undermining an already fragile political legitimacy.
It cannot be accidental that France's leading politicians increasingly refer to their country as the "grande nation." Since the election campaign, President Hollande has hardly missed an opportunity to invoke the nation's greatness. With some dialectical malice, one could see this as evidence that France's greatness is now becoming a relic, but it certainly reflects the self-hypnosis of a nation whose stature is in the process of shrinking.
"Our soldiers demonstrated our role," Hollande said recently in a major press conference at the Elysée Palace, as he praised one of his rare successes, the military operation in Mali. "Namely that of a great nation that can influence the balance of power in the world."
There is an increasingly stark contrast between the feigned grandiosity of the president's appearances and the faintheartedness of his daily actions. The obstructionism and inflexibility that prevail throughout the entire country can only be eliminated through deep-seated renewal. But so far Hollande, who promised "change" in his campaign, has been more conspicuous for his hesitation than his courage.
Since this spring, Hollande has been viewed by most commentators as the nice "Grandpa" in the Elysee Palace, who lacks the gumption to address the country's serious structural problems. The French constitution grants the office of the president more power than is allotted any other leader of the Western world. Besides, his Socialist Party holds significant majorities in the National Assembly, the Senate and even in regional governments.
In other words, Hollande could get down to business on any day he chooses. He could reform the country as he wished, if only that were his objective. But no one -- not citizens, not journalists and possibly not even his cabinet ministers -- knows what he wants and if indeed he wants anything at all.
Does he aim to be France's great reformer but lacks the courage to defy the left wing of his party, as a member of the German government believes? Or is it that he clings to his party's old formulas, wants to change as little as possible and is waiting for the day when the recovery happens on its own?
Hollande's Mixed Messages
At the recent 150th anniversary celebration of Germany's center-left Social Democratic Party (SPD), Hollande praised the "bold reforms" introduced by former Chancellor Gerhard Schröder, which attracted attention in France. But it remains unclear how he intends to apply this recognition to his own country. Last week, when the European Commission called upon France to "credibly implement ambitious structural reforms" in areas that include pensions, ancillary wage costs and taxes, he responded defiantly, saying that the Commission had no right to dictate anything to France. His country is reforming itself, he added, but how it approaches the task is its own affair.
It was a surprisingly irate reaction, given how accommodating the Commission has been to the French. They have been given a two-year reprieve, until 2015, to reduce new borrowing to less than 3 percent of GDP. In other words, France is not expected to cut spending and enact reform at the same time, which is a departure from the hard line represented most prominently by German Chancellor Merkel.
Nevertheless, France is routinely offended by criticism from abroad, especially coming from Germany. It is precisely this combination of sensitivity and heel-dragging when it comes to reform that other Europeans find worrisome.
What could be done? There are plenty of blueprints available, the most recent by former EADS CEO Louis Gallois, who was asked to write a report for Hollande on how France could improve its competitiveness. His conclusions are similar to those of the European Commission and the International Monetary Fund. According to Gallois, France should reduce its ancillary wage costs, which amount to half of gross salaries, as soon as possible. It should relax its rigid labor laws, under which it currently protects those with tenured jobs from others trying to enter the labor market -- mostly young people -- whose employment status often remains precarious. Other steps under discussion include raising the retirement age and lowering taxes.
The administration, elected on the strength of completely different and unrealistic promises, reacted lukewarmly to the Gallois report and has since given the impression that it is pursuing a zigzag course. It has indeed enacted a few reforms, such as tax relief for small and mid-sized businesses and a cautious amendment of its labor laws. On the other hand, the government is still adhering to many campaign promises, including the lowering of the retirement age for certain groups to 60 and a 75-percent wealth tax on incomes over €1 million, which triggered reactions throughout Europe and was promptly struck down by the Constitutional Council. The French audit court recently criticized the government's plan to hire 60,000 new teachers.
It took until March 2013 for Hollande to clearly state, for the first time, that government spending needs to be reduced and that the French will have to "work a little longer" for their pensions in the future. But before anything can happen, the government will first need to enter into protracted negotiations with labor unions.
The Minister of Productive Recovery
To comprehend the way of thinking that has shaped France for decades, it's worth having a conversation with a man who is sitting in the First Class car of a TGV high-speed train traveling in the direction of the Alps, from Paris to Chambéry. He looks splendid as always, with his perfectly fitting tailored suit, his blue eyes and his bright white teeth. Arnaud Montebourg is 50 but looks much younger. He is France's industry minister, but his official title is more apt, because it sounds as grandiose as the minister himself: Minister of Productive Recovery. A visit to a dying factory is on today's agenda.
His destination is the Rio Tinto Alcan aluminum plant in Savoy, which its owners plan to shut down because they believe that operating the plant is no longer economically viable. Montebourg, who has never worked in industry himself, disagrees. He has even found a German company that wants to keep the factory and its jobs afloat, with government support. The purpose of his visit is to garner support for his rescue plan with German assistance.
"France once had a glorious industry," says the minister. He adds that he personally combats the nightmare scenario that author Michel Houellebecq described in his novel "The Map and the Territory," set in 2035, when all of France has become nothing but a theme park for tourists.
To avert this fate, Montebourg, since coming into office, has been hectically travelling around a country whose industrial base is in jeopardy. More than 1,000 factories have been closed in the last four-and-a-half years, and industry's share of value added is now only half as large as it is in Germany.
Montebourg has assumed the role of the outspoken populist among his fellow cabinet ministers, while the others tackle the tedious task of reforming the status quo. The darling of the party's left wing, he is reputed to be on hostile terms with the prime minister, and Hollande seems convinced that it is better to have Montebourg in his government than leading demonstrations against him.
The minister believes in the state. Although it has "no divine power," he says, it can "accomplish a lot." France is a "world power," and it refuses to be forced into a game of "cat and mouse" by international corporations, continues Montebourg. Part of his portfolio is to publicly berate big business leaders, which includes telling people like steel baron Lakshmi Mittal that he is no longer welcome in France. Although such statements attract attention, it is not clear how many jobs they have yet preserved.
At the beginning of the year, Montebourg engaged in a public correspondence with American corporate leader Maurice Taylor, whom he had asked to acquire a Goodyear tire factory threatened with closure. Taylor responded: "How stupid do you think we are?" He wrote that he had no interest in investing in a country where "so-called workers" spend "only three hours" a day actually working and in which he would be constantly battling with unions.