ANALYSIS: France & Lagarde are far closer to the cliff than they care to admit.

It’s thumbs up for France, says Lagarde.

Over the last two months, The Slog has occasionally given readers the benefit of personal observations about France’s willingness (or ability) to take the strain and pain of austerity. My general argument over that time has been to the effect that there are no signs at all of that intention – in fact, few signs as yet that the Sarkozy Government has anything but the vaguest idea of the mess it is in.

So far, the one verifiable fact – issued by Christine Lagarde’s Finance Ministry – is that not a single French public sector worker has been forcibly removed from employment. There have been a small number of unreplaced retirees and a couple of voluntary redundancies, but that’s it. And while we must remember that Mme Lagarde is not an A* maths student, the figures weren’t compiled by her and so are probably reliable. What I’d like to do now is take you through some equally cast-iron numbers. Those of a French disposition should look away now.

Lagarde predicts the French economy will chalk up growth of 2.0% next year, and reduce the budget deficit from 8% of GDP to 6%. Her optimism is based on the Bernanke Wyoming principle of ‘It must, because otherwise we all drown’. But real life is different: senior Natixis economist Jean-Christophe Caffet forecasts that France will grow in 2011 at only a 1% rate. Or exactly half of Christine’s guesstimate…and under a third of her original prediction in February of a 3.2% rate of expansion.

It could be the growth is going to come from upping efficiency. GDP per capita in France runs at under two-thirds the US level, so there’s room for what the house agents call potential. However, the per capita output is a direct result of Union power – and that shows no signs at all of going away: Sarkozy has only to suggest a cut in State pensions for les syndicats to start talking blocked autoroutes and blockaded ports.

Mme Lagarde’s forecast will certainly need to be realised – and more – if the country’s deficit is to be controlled. Currently running at a compound increase of 3 billion Euros a month, there is much talk at Finance and in the Elysees Palace of bold steps to get the deficit down. But as the Organisation for Economic Co-operation and Development (OECD) caustically observes, “France has a poor track record in meeting the deficit targets in its stability programs”. In the 10 post-euro launch years for which data are available, France’s budget deficits averaged 3.25% of GDP.

In short – as The Slog has been recording since its inception – France has been outside the limits allowed by the Single Currency Act every single year.

The truth is that, as Nicolas Sarkozy has gained a proper whiff of the increasingly truculent French mood, he has reverted to ‘France First’ type. Of late it’s becoming obvious that his policy of choice will be protectionism – the diametric opposite of that free trade which is supposed to be the economic point of the EU.

The Economist Intelligence Unit (EIU) notes how the French President continues to set up and protect ‘national champion’ companies. He is also voluble on the subject of encouraging “Franco-French” mergers – to prevent foreigners from acquiring French companies.

France wants what it always wanted from the EU: freebies, not free trade. Free trade is great when Germany is buying all the farming output (with Brussels throwing the rest away) but once Germany gets antsy about the debt and the Rosbifs kick up rough about the Common Agricultural Policy, France will be the first to end the game by taking its ball home.

It’s been 55 years of stitch-up, corruption, bureaucratic hubris and unwritten German war reparations in the gradual emergence of the EU caterpillar from the EEC butterfly. But it is now revealed for what it is: an insolvent farce to which there is little balance and zero rationale.

People often write to me of an alleged ‘gloating desire to see the EU fail’, but they miss the point. A loose Europe with retained State’s rights and a desire to learn mutually remains a great idea – and precisely what the bloated, controlling and mendacious EU can never be. And anyway, such critics don’t read the data enough. For example, 16 out of the 18 members of the eurozone contribute nothing at all to growth. The primary sources of ‘profit’ for the Union are France and Germany inside the zone – and the UK outside it.

Anyone keen on that shambolic confection as a primary trading partner must, I would contend, be a bailout short of a brain.

11 thoughts on “ANALYSIS: France & Lagarde are far closer to the cliff than they care to admit.

  1. Hmm, and the UK has such a robust GDP/capita? It's similar to France's. Our system seems to be at least as bad as the French one, and they get the freebies, we get to pay. It might also have been worth mentioning that France sees the EU as balancing US power in the world, an attitude that might have been relevant in the 1980's but is now irrelevant given that China has taken over from the US, or is about to.


  2. Living in France for the last 7 years I know a thing or two about the french and their interpretation of the economy and their idea about curtailing costs. Their economy is in a mess, every frenchman knows that but instead of blaming themselves it is the fault of "les anglo-saxons" Bailing out Greece had nothing to do with Greece whatsoever, it was solely seen as a means to receover the french bank loans made to Greece. The EU is only good enough when it does what the French want to be done.Their farms are a shining example of inefficiency. As it so happens my nearest neighbours are two field of cows!!!. We have french farmers as "friends", being foreign you will never be regarded totally what they call "chez moi" We also have a dutch farmer as a friend, my wife happens to be a "clog" The two farms are identical in size, in acrerage, beasts and milk quotas. The french farmer cannot make ends meet, but the dutch farmer is very happy indeed. I have taken the french farmer to the dutch one and the reaction afterwards was " I would never work like that it is to stressfull, with which was meant I do not get up at 06.00 or 06.30 in the morning but I turn to at about 08.00 hrs and that is early enough and I need two hours lunch and stop again at 17.00 hrs. I have ranted enough, but just to put a smile on your face, it is the only place I have come across where there is a notice on the door of the restaurant. Sorry closed for lunch. It sums it all up.PS do not ask why I live in France because that is a different story!!


  3. Like Loujis I lived in France for 10 years and enjoyed, almost, every minute. However I do have to agree with the sentiments expressed in the previous two postings. Barncactus’ observation regarding French views on the Yanks is exactly what I found and Loujis’ sojourn into French economics the same. The French certainly seems to have an arrogance in these matters which I found hard to understand or believe they deserved. I can completely understand how say a neighbouring country could walk in and take over; they would only have to guarantee the 2 hour lunch break and that would be enough to turn any resistance into a Gallic shrug! Don’t get me wrong I have many French friends and most are very hard working, when they are actually at work, it’s just the whole repertoire of etiquette surrounding the work is more important than the actual work? Try getting a devis without offering an aperitif! As for Sarko I think the only way he will retain his position is to play the nationalist card but of course not too anti German! It’s not that long ago he said he wanted to water cannon the Parisian Ghettos. What didn’t go unnoticed by the locals was his first actions after taking the Presidential seat, whopping tax reductions for his backers and a huge increase in the Presidential salary.


  4. EveryoneAll true…every word of it. Louis, your wife is a Clog, mein is a Kraut. My great-grandmother was a Frog and my wife's granny a Taff. My first wife was a Jock and my grandma was a Paddy.This is what the EU does you see….it broadens our minds.I admire the French – I really do: to take the urine for this long and STILL believe that it's SO UNFAIR is both remarkable and hysterically funny.


  5. Off topic:but very important:Steve Forbes believes in coming gold/silverstandard… Bell: You have studied economics for most of your life, it appears. Do you consider yourself of the Austrian school? Are you surprised by the progress the Austrian School has made in the 21st century?Steve Forbes: The basic tenets of the Austrian School have withstood the test of time, and while I may have some variation of views on how you'd implement say, the gold standard, I think the basic tenets are absolutely there. Hayek, Mises and – though he's not considered a fully part of it – Schumpeter had insights on entrepreneurship. Liberty is good, government domination is NOT!Daily Bell: You mentioned a gold standard. Should the Western world return to some sort of gold standard? What would it be? Is it feasible?Steve Forbes: We will return to a gold-based monetary system. I don't think we'll go back to a 1920s or 20th century-style gold standard. But I think monetary policy will be tied to the price of gold, which manifestly it is not today. So, yes, a gold-based system is coming back, and it will be good!


  6. Loujis SallonsLaughing here. I, too, have similar neighbours.I never know if I should admire the 'French' way, or despise it. But I can understand it, from a philosophical perspective, or course.Loire Atlantique Loafer


  7. If France didnt exist you`d have to invent it. At least they understand the importance of LUNCH ! And hey, why not; what are we all here on this earth for if we cant have a decent and preferably well oiled lunch for goodness sake! They pay and elect their politicians to look after FRANCE, not the EU and if the little rules need breaking then they get broken, but not betweem 12 and 2 pm….


  8. 'The Economist Intelligence Unit (EIU) notes how the French President continues to set up and protect 'national champion' companies. He is also voluble on the subject of encouraging "Franco-French" mergers – to prevent foreigners from acquiring French companies'.Pity our guys aren't doing the same for our companies (if we have any left).


  9. Pingback: STRAUSS-KAHN: DSK allies out to make life tough for Christine Lagarde. | The Slog


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s