Monday, 31 July 2017

There is no such thing as a free lunch - Part 2: the motorways

As every foreign motorist familiar with France will know, intercity motorways are certainly no free lunch. In this respect, they are a notable exception (water services being another) to the rule that public services are always provided by the state. The vast majority of the country’s intercity motorways are toll roads, conceded by the state to private companies. Given the general distrust in France of capitalism in general and private companies in particular, the relationship between the French motoring public and the companies is not always a happy one – and politicians do little to make it happier - on the contrary.

The economic case for toll motorways is fairly clear-cut. The infrastructure can either be paid for by the state out of general taxation or it can be paid for by users, or by a mixture of the two. Both models exist in Europe. In France, the toll model seems amply justified inasmuch as not all French taxpayers use the motorways but many foreigners who flock to France’s beaches and ski slopes throughout the year, and who are not French taxpayers, do. Initially, when most of the motorway network was built, the state charged the tolls but between 2002 and 2006, the government of the day decided to privatise the networks in order to raise much needed revenue and recoup its initial costs. After a European-wide call for tenders, the concessions were awarded to a number of companies who purchased the infrastructure for a period of 30, 40 or 50 years, funded it with debt, undertook by contract to maintain and develop it and, in return, collect the tolls. Unlike the SNCF (see my previous post) the concession holders are private companies who have to make enough revenue to pay off their debt, cover their own operating costs and keep their shareholders happy by paying regular dividends.

Given fairly strict regulation of the tolls the companies can charge and the rate at which they can increase them, it is perhaps surprising that the issue has generated so much controversy. Motorists regularly complain about price increases and politicians are often quick to jump to their defence, accusing the concession holders of gouging consumers, conveniently forgetting that they cannot increase tolls more than their regulatory obligations allow. The peak of such demagogy was reached when the former Minister for the Environment, Ségolène Royal, always quick to spot an issue from which to make political capital on the cheap, demanded that motorways should be free of charge at weekends. Various reports, in particular one from the very serious national court of auditors, have concluded that, given the profits made by the concession holders since privatisation, the state sold its motorways at much too low a price. Some politicians have even suggested that they should be taken back into public ownership. In the regular battles of figures that hit the media headlines, nobody, it seems, has ever raised more fundamental issues like whether the state would not be better advised to stick to those tasks that only it can properly fulfil, like security, defence and justice, nor whether the concession holders have not quite simply done a far better job of managing the assets they purchased than the state would ever have done or been able to do.

To any regular user of the motorways between Paris and western France like myself, it is clear that there has been no lack of investment since privatisation. Long stretches of motorway have been upgraded from two to three-lane highways, the roadways are regularly resurfaced and rest areas have been remodelled to make them far more consumer-friendly than they were. Toll technology has been modernised too: badges are now widely available, making it increasingly possible not to stop and queue at tollgates.

And the vehicles have kept coming.  Motorways are the routes of choice for the vast majority when they embark on a long car journey, not to speak of commercial haulage firms. During weekends at holiday time, 24-hour radio stations open their news bulletins with congestion warnings and report regularly on the length of tailbacks.  Despite the additional cost involved, many families eat lunch, dinner or snacks at motorway restaurants and cafés. The attractive picnic areas are always full at meal times. 

Users, it would seem, continue to complain all the way to the tollgates!

Wednesday, 26 July 2017

There is no such thing as a free lunch - Part 1: the SNCF

This is a typical expression in English for which I have never found a satisfactory equivalent in French – maybe French-speaking readers of this blog can make some suggestions!  I heard it frequently in conferences, often in the mouths of the wry and pragmatic Dutch or Danish delegates. What it means of course is that the true costs of a public service are far from covered by prices charged to users, who may think they are getting a “free lunch” but end up paying for it in other ways, usually well concealed. At a time when there is a lot of talk in France about cutting public expenditure and ending “our addiction to public spending” as the Prime Minister put it the other day, it seems appropriate to delve into three areas of everyday life in which a majority of the French either take a free lunch for granted or complain about it being too expensive when they have to pay for it out of their own pockets. And as the summer holidays are upon us, let us start with an example of France’s infrastructure, the railway system and its monopoly operator, the SNCF, wholly owned by the French state.

President Macron recently inaugurated a new high-speed rail line between Paris and Rennes on the same day as another was being inaugurated between Paris and Bordeaux.  Since 1981, when the first high-speed line was put into service between Paris and Lyon, billions of Euros have been poured into other high–speed lines and the sleek trains that run on them, putting Marseille just three hours from Paris, Bordeaux and Strasburg just over two hours, Rennes, Le Mans, Tours and Lille a little over an hour. The popular Eurostar service between Paris and London is an offshoot of these efforts, leading to the first high-speed line to be built in the U.K between the Channel Tunnel and London, as well as the Thalys service between Paris, Brussels and Amsterdam. For those of us old enough to remember the long haul between Paris and Brussels on the grandly named “Trans Europe Express”, being whisked to Brussels in under 90 minutes is a luxury indeed, although for passengers travelling on to Amsterdam, the effect is spoilt by the long and a tortuous pull through Belgium and the lack of a high-speed track for the rest of the trip.

However, the ease and convenience of escaping traffic jams and the drudgery of airport security controls by travelling by high-speed train do not come cheap. The TGV operator, the SNCF has an endemic operating deficit and although it sometimes makes an annual profit (much of which is creamed off in dividends by the state) its outstanding debt of between 40 and 50 billion Euros, is of course part of the French public debt. Some of this will eventually have to be written off, in other words, charged to taxpayers, who also have to pay the cost of the debt. Only a company wholly owned by the state can enjoy such a luxury. Which goes a long way to explaining why the French state and the SNCF want to keep it a quasi-monopoly provider for as long as possible and have fiercely resisted all attempts by the European Commission to prise open the French rail market for passenger services. By 2019, we are told, regional authorities, that now have the authority to organise rail services within their regions, will be able to open up their calls for tender to alternative operators. It also explains why the SNCF has never been able to sell a high-speed train link to other countries: by normal accounting standards, it would never be profitable, or the subsidy required to make it pay deemed too high

In pursuing such a policy, the French state is of course staying true to its long-standing mercantilist tradition, which it also continues to practise with other providers like EDF and Aéroports de Paris, in both of which it is by far the majority shareholder: protect your home market as best you can while selling as much as you can to other markets. The SNCF generates 20% of its revenue from 120 countries but foreign operators have no more than a toehold in France. Sweden and Germany, among other countries where competition in passenger services has been more warmly embraced, are generally happy with the outcome. The big advantage of the French position of course is that it has given France a standard of rail infrastructure in terms of quality, safety and coverage on a par only with that of Japan. Nobody would dispute that it is a great asset to the country and cannot therefore be measured in purely accounting terms, but must also take in more intangible and unquantifiable benefits.

This being said, it is now clear, regardless of the pressure exerted by the European authorities and foreign train operators, that the limits of this essentially protectionist model have been reached. The most recent, and most expensive, high-speed lines will undoubtedly be the last for a very long time, as President Macron pointed out after inaugurating the line from Le Mans to Rennes. His message was clear. There is a limit even to the capacity of the state’s deep pockets to continue to accommodate such high levels of debt while the SNCF spends most of its budget on high-speed rail to the detriment of basic maintenance on suburban lines in and around France’s major cities, particularly Paris. The consequences are not always as dramatic as the tragic accident at Bretigny-sur-Orge in 2013 (7 dead and 70 injured) due to a lack of long overdue points maintenance. Passengers who rely on suburban services at rush hours frequently spend as long on overcrowded, delayed and slow-moving suburban train as they would to travel from Paris to Tours, Lille or Le Mans on a high-speed TGV. The SNCF’s huge pension deficit gets larger every year as an increasing number of train driver take much earlier retirement than employees in other industries. Working conditions for staff are highly favourable and have led to the SNCF’s freight business, already open to greater competition, becoming totally uncompetitive with new entrants making inroads into the market by operating more efficiently and with fewer and more productive staff.

The railways workers’ unions, powerful, divided and militant, have done their best in the past and will undoubtedly do the same in the future, to resist changes to their working conditions or pension arrangements, despite advances in technology and longer life expectancy. And they know only too well that if they want to, they can bring the country to standstill, as they did to great effect in 1995. Paradoxically though, they are not entirely devoid of a public service ethic: trains run 20 hours a day and every day of the year. Try taking a train to London, or anywhere within the UK for that matter, on Christmas Day or Boxing Day and you will be told that there are no services at all. But if you live in Paris and wish to celebrate Christmas with your maiden aunt in Lille, it is possible to get there and back by train on Christmas Day!

Such are the deeply entrenched paradoxes that the SNCF and the French government will have to confront in the next few years: maintain, or restore, a high quality service to the general public, from office workers relying on suburban trains to businessmen and women fitting in a return journey to Lyon or Marseille within a day, while maintaining high levels of safety and punctuality and making staff work longer hours and longer years so that overall costs can be covered mainly from revenue and the SNCF can cease to rely on substantial subsidies from the taxpayer. It will take more than a few lunches, free or otherwise, to get there!

Sunday, 16 July 2017

Hail to the Chief!

Wikipedia tells us that Hail to the Chief is the official Presidential anthem of the United States “ that accompanies his appearance at many public events”. I did not watch enough of the traditional July 14 military parade this morning to know whether it was played to herald the arrival of Donald Trump as President Macron's guest of honour. Judging by the events of the last few days however, the anthem could be considered equally appropriate for Macron, who has chosen to put particular emphasis on acting like a Chief.

I wrote in my last post (The times they are a’changing - July 6) that the French Prime Minister’s first policy speech to parliament contained little detail and that its main thrust appeared to signal the postponement or watering down of most of the commitments in Emmanuel Macron’s presidential programme. Whether the President has had second thoughts since or whether he and the Prime Minister agreed beforehand on this particular strategy, Macron has now made it abundantly clear that he intends to implement all of his programme within more or less the original timetable, a change of tack that, if nothing else, makes him look decisive and not about to take the slippery slope that his predecessor, François Hollande slid down at an alarming rate after coming to power in 2012 and that largely handicapped his subsequent years in office.

The immediate effect of this show of decisiveness is to put public spending cuts back on the agenda for 2017 so that France can hit the fiscal deficit target of 3% by the end of the year and start cutting taxes next year. The theme of France’s economic and financial credibility is therefore once again in the front line, underscored by an interview given by the President to a French regional newspaper but also, significantly, to a number of German papers, on the eve of a Franco-German cabinet meeting and another discussion with Chancellor Merkl about the future of Europe.

Among the spending cuts decided is a reduction of €850 million in this year's  defence budget. This had not gone down well with the Chief of the General Staff, who complained bitterly about it to a parliamentary committee, drawing an immediate and very public rebuke from the President in a speech to top brass on the eve of the July 14 parade. “I am your Chief “, he said “and I have made a number of commitments to the French people that I intend to keep.” He went on to sugar the pill by promising an increase in the overall military budget next year and thereafter a steady increase, but the immediate impression, once again, was that the President was making a point of stamping his authority on the military just as he has on the Prime Minister and his government.

Many years ago, a British General whose name I no longer remember, offered the view in a TV programme that the French are a rebellious people who need a strong guiding hand to get things done. “And it usually ends up being a soldier”, he added. He was probably thinking of General de Gaulle, or further back, of Napoleon Bonaparte, both of whom had a decisive influence on the country and its history.  Emmanuel Macron has never been a soldier and was born too late for compulsory military service. But he too seems to have concluded that the French need their Chief to show the kind of authority that neither of his two predecessors displayed. Hollande never had much in the first place and Sarkozy wasted what little he had.

One commentator said this morning that there is a military theme running through many of Macron’s acts and policies so far, from naming his political party En Marche, usually translated as “On the Move” but could also be  “On the March”, to riding up the Champs Elysées in a military vehicle on his inauguration day, to taking a brief trip beneath the waves on a nuclear armed submarine, not to speak of his latest statements.  

If this is indeed the case, then we are likely to witness more, metaphorical, firework displays than were on offer on the evening of July 14, as protests and demonstrations in the autumn come up against Macron’s iron will to push through his reforms with the aid of his large parliamentary majority. This time next year we may be hailing the Chief once again, but I predict a bumpy ride between now and then!

Thursday, 6 July 2017

The times they are a' changing

In his speech to parliament on Tuesday, laying out his legislative programme for the next five years, the French Prime Minister, Edouard Philippe, quoted “the winner of the Nobel Prize for Literature 2017” when he said “ …how many times can a man turn his head, pretending he just doesn’t see”. I’m not sure whether Bob Dylan would approve of two lines of his 1960s anthem “Blowin’ in the Wind” being used to illustrate a point about the French national debt, but be that as it may, France’s new two-headed executive has not been shy of displaying its literary references in the last few days.

In his much commented official portrait, a determined looking President Macron grips the edge of his desk and looks directly into the camera against the background of an open window. As we have been told at length in a “making of” published on the President’s Twitter account, but certainly wouldn’t have noticed otherwise, he chose to be photographed with one carriage clock, two smartphones and three books arranged artfully behind him: Stendahl’s novel “Le Rouge et le Noir”, De Gaulle’s “Memoires de Guerre” and André Gide’s “Nourritures Terrestres”, a hymn to hedonism and nature, written in a somewhat inaccessible style that is apparently one of his favourite books. We are invited to reflect on the fairly obvious symbolism of these choices.

On the same day, the French Court of Auditors released its “official” figures about the state of the French budget deficit and national debt. They reveal that the outgoing administration has left a hole of 8 billion Euros in this year’s budget, the equivalent, as the Prime Minister chose to put it, of the annual budget of the Ministry of Culture. It is nothing new of course for an incoming government to blame its predecessor for a much worse situation than originally thought. It burnishes its credentials for honesty and transparency and serves as a justification for more painful measures than those promised during the election campaign. This time however, the stratagem lacks credibility, as the 2017 budget was prepared in the middle of last year by a government in which Emmanuel Macron was the Minister for Economic Affairs until his resignation in July 2016. Just in time to escape carrying the can but too late not to know that the 2017 budget was being built on very shaky foundations.

This being said, the Prime Minister has pledged to bring the deficit, at least, back into line - under 3% of GDP - by the end of this year and go further in subsequent years. Just how he will do it remains unclear and his speech was not bursting with detail, to put it mildly. Most of the tax changes promised by Macron during his campaign have been postponed until the middle of 2018 and actual cuts until 2019. More money has been promised to boost low pensions, provide fast broadband services to the whole country and generally increase spending on strategic investments, but there is no timetable attached either. Even if the more tangible measures announced by the President in his strategy speech the previous day, like reducing the number of parliamentarians by a third and seriously pruning the useless but costly Economic, Social and Environmental Council, are implemented in the next two or three years, they too will have no immediate impact on spending. The Prime Minister simply stated that the civil service wage bill, almost 23% of public spending, will be reduced and that no budget nor type of expenditure will be taboo. Two possible interpretations of this dirth of detail: either this is the usual post election retreat and we shall see in five years time that little has been done and and that not much has changed, or Macron and his Prime Minister really mean business and will simply do what needs to be done without talking much about it, using their huge and pliant parliamentary majority to ride out any protest.

One of the significant areas that has been given no more than a passing mention by both the President and the Prime Minister, and that nobody seems to have picked up on so far, is pension reform. This is interesting as the candidate Macron presented some fairly radical proposals for merging France’s numerous pension schemes, effectively putting an end to the privileged pension provision enjoyed by civil servants compared to those working in the private sector. He gave voters to understand that this was an essential milestone on the road to meaningful reform. One commentator has timidly suggested that Macron might have come to a secret understanding with the unions in which they would not stand in the way of root and branch reform of the private sector labour market, in which their representation is minimal, in exchange for a pledge that he would not go too far too fast in shaking up the public sector, in which they are far stronger. Whether this is true or not, pension reform is no longer, apparently, an urgent priority It is true that many people still remember the unfortunate experience of Alain Juppé, of whom Edouard Philippe has been a close ally in the past. In 1995, the newly appointed Prime Minister promised, to a standing ovation in the Assemblée Nationale, a complete overhaul of public sector pensions, only to climb down ignominiously six weeks later as unions brought the country to a standstill. Maybe President Macron has concluded that the country can only stomach reform in small doses and that he should start with the labour market and see how that goes first.

With the elegant carriage clock in the official portrait supposedly indicating that he is the master of time, Macron may have another two lines of a Bob Dylan song, The Times they are a’ changing, going through his head as he contemplates the hard and painful choices that he cannot put off for much longer: “ ….don’t speak too soon for the wheel’s still in spin”.

Sunday, 2 July 2017

Simone Veil

Simone Veil, who died last Friday, will mostly be remembered in France for her courageous and successful ministerial stewardship of legislation to legalise abortion in 1974. But she was also a committed European who fought tirelessly throughout her political career for reconciliation between France and Germany and the construction of the European Union. A commitment all the more remarkable for someone who, at the age of 16, was deported from France by the Nazis with her entire family, was interned in Auschwitz and Bergen-Belsen, lost her father, mother, brother and one sister in the Holocaust and survived together with two other sisters, to return to France, study, marry, start her own family, become a magistrate and eventually a politician. She was the first President of the newly elected European Parliament from 1979 to 1982. Her passing throws into relief a book I have just finished reading and triggers a personal memory.

The book is the memoirs of Paul Schmidt, better known as Hitler’s interpreter, entitled Statist auf diplomatischer Bühne“, translated into English as “Hitler’s Interpreter – the memoirs of Paul Schmidt” (The History Press, 2016). It covers the whole of Schmidt’s career between 1923, when he joined the German Foreign Office and 1945 when he was arrested by the Americans, interrogated and appeared both as an interpreter and a witness during the Nuremberg trials. What one learns from the book is that the efforts to pool the French and German iron and steel industries under the 1950 Schuman plan, the foundation of what has since become the European Union, did not come like a bolt out of the blue but harked back to intense economic and political co-operation between France, Germany and other countries between the Versailles Treaty of 1919 and the military occupation of the Rhineland by Hitler’s troops in 1936. Schmidt narrates the numerous bilateral and multilateral meetings and conferences between leading French, German and other European and American politicians, including plenary and committee meetings of The League of Nations, as well as high-level conferences on economic co-operation, disarmament and other matters. He chronicles the consequences for the whole of Europe of Hitler’s rise to power and the last desperate diplomatic efforts to avert war between 1937 and 1939, all of which he witnessed at first hand. In the foreword to his book, Schmidt, who comes across throughout as a competent and honourable servant of his calling, is at pains to point out that during all these years he always stuck strictly to the neutrality required of a linguistic mediator. But he adds a little later: “ On one point I am not neutral: on the struggle between fanatics of whatever race and nationality and “les hommes de bonne volonté” (In French in the original) of whom I met so many during my eventful career. My aim in this book is to place myself, as a good German, fairly and squarely, on the side of “les hommes de bonne volonté” because I am convinced, on the strength of everything I have experienced, and particularly the history of the Third Reich, that the real enemies of mankind are the fanatics, wherever they come from” .[1]

It is a salutary reminder that there have always been men …and women… of good will in Europe and elsewhere, convinced, in spite of everything, that European co-operation is essential to ward off the fanatics. Simon Veil, after suffering so much at their hands, was surely one of the most effective. It is also a reminder that at times like this, we need perhaps to take a few steps back from the frequently derided daily work in Brussels and elsewhere on Directives, Regulations and other legal instruments and remind ourselves of the ultimate aim of European construction.

The personal memory is also that of an interpreter and goes back to the beginning of the 1990s when I had the privilege of working regularly for the French Minister of Finance of the time, Pierre Beregovoy. At some point during the period when the Maastricht Treaty was being negotiated and a single European currency was in the offing, Beregovoy hosted a delegation of American senior officials.  As was widely reported in the media at the time, the Americans in general were (and still are) highly sceptical of the whole idea, considering that the Euro would never be a viable currency because the mooted Euro area was not “an optimum currency area” and would in any case be dominated by Germany. Asked by this particular delegation why France was considering giving up its monetary sovereignty and bowing to the mighty Deutschmark, Beregovoy’s answer was as cryptic as it was final: “for the sake of peace….” The word “peace” was left hanging in the air for a few moments, as if to say, which he didn’t of course:  “if you don’t understand that, then you don’t understand the first thing about Europe”.

Among the numerous tributes that have been paid to Simone Veil, one other French Holocaust survivor was asked in a radio interview how the next generation could continue to keep the memory of the Holocaust alive once its last witnesses have died. She answered that Simone Veil had worked all her life to do just that and that she hoped her work would be continued. The answer was undoubtedly sincere but also, in its own way, left many things hanging in the air.

Future generations of Europeans can surely best honour their predecessors by continuing to forge that “ever closer union among the peoples of Europe” so that no warfare, economic or otherwise, can ever break out between them again.

[1] Unless otherwise stated, all translations from French and German in this blog are my own.