Hollande's World French in Denial as Crisis Deepens


By Romain Leick

Part 2: A Plethora of Public Servants

Even former EADS chief Gallois, an advocate of the rapid restoration of French competitiveness, had to admit that a program like Germany's Agenda 2010 package of reforms would not be accepted in France. Nevertheless, he did not mince words in his report on the state of the French economy, noting that industry's share of economic output has declined from 18 percent in 2000 to 12.5 percent today. This puts France in 15th place among the 17 countries in the euro zone, and significantly behind Italy. The country's industrial sector has lost 2 million jobs since the Mitterand era. In 2011, France had a trade deficit of €71.2 billion ($93.1 billion), compared with a surplus of €3.5 billion in 2002. At the same time, the national debt has grown to 90 percent of the gross domestic product.

"Whenever a new problem popped up in the last 25 years, our country reacted by increasing spending," says banker Michel Pébereau.

Public sector spending now accounts for almost 57 percent of GDP, more than in Sweden or Germany. For every 1,000 residents, there are 90 public servants (compared with only about 50 in Germany). The public sector employs 22 percent of all workers.

La douce France is a sleepy country of bureaucrats and government officials who want their peace and quiet. But the bad news is beginning to pile up for Hollande.

Rising Unemployment

Montebourg's agitation can be partially explained by the fact that since the Socialists came to power, the country has added another 150,000 unemployed, bringing the national unemployment rate to 10.7 percent. Some 45,000 people were added to the unemployment rolls in October alone. Instead of straightening up industry, Montebourg is preoccupied with fighting redundancy programs.

Only now has the government brought itself to grant companies €20 billion in tax relief to reduce labor costs. But it was a somewhat half-hearted step. Gallois considered €30 to €50 billion necessary. Last week, the government was confronted with another disastrous report, this time on the situation facing France's young people, who have been especially hard-hit by poverty and unemployment.

Sociologist Olivier Galland, who headed the study, detects a feeling of bitterness and abandonment among 16- to 25-year-olds. "All of the elements are in place that could trigger yet another explosion," like the one in the late fall of 2005, when there was rioting in the outskirts of major French cities.

"The system won't survive if we don't change," says Gérard Dussillol, a French expert on finance who works for a Franco-Belgian think-tank. He believes that "France, as a domino, can shake the entire system of the euro zone."

Karl Lagerfeld's 'Spa Tax'

Even fashion designer Karl Lagerfeld no longer has anything good to say about his adopted country, where he claims to pay €2 million in annual taxes, which he calls "a sort of spa tax to the French state." French politics, with its symbolic tax on the rich, has become "grotesque," says Lagerfeld, while the French have "sterilized themselves intellectually." The only thing that still works in the country is fashion, he said in an interview in Berlin.

There are many indications that time is running out for Hollande, that Prime Minister Ayrault's days could already be numbered, and that the valiant knight Montebourg, who had initially aspired to be Ayrault's successor, is more likely waging a tragic battle against the windmills of globalization.

A recent issue of the magazine supplement to the daily newspaper Le Parisien, showed Montebourg photographed wearing a blue-and-white striped shirt made by the Breton clothing manufacturer Armor Lux, holding up a "made-in-France" Moulinex mixer. It was an emblem of the old France, at a time when there was no globalization and the world was still all right.

Translated from the German by Christopher Sultan.


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