Wednesday, 30 August 2017

The next grand bargain ?

President Macron’s tour of central European capitals last week was ostensibly about reforming the EU posted workers directive. The directive, that came into force as long ago as 1996 and has been tweaked a few times since, is clearly in need of reform. As a half-way house between freedom of movement and no movement at all, the idea of posting workers from one EU country to another for a short period of time, abiding by the host country’s minimum wage regulations but escaping their, usually higher, social contributions, does not in itself seem a bad idea as a way of contributing to the gradual convergence of living standards. That being said, it has clearly been abused by unscrupulous employers, some of whom have gone so far as to set up shell companies in countries like Bulgaria and Romania solely to be able to employ cheap labour in high-cost countries. Abuse of directives however would not normally be a priority concern for a French President; once a Directive has come into force, it is, after all, the European Commission’s job to police it. But by publicly insisting that the Directive is “against the spirit of Europe” and engaging with some of the governments most directly concerned, including the firing of a well-aimed warning shot across the bows of the Polish government, Macron has given us some clues as to his underlying motives for taking up the issue in the first place.

Macron has said on more than one occasion that Europe should “be more protective”, a somewhat enigmatic phrase, the meaning of which is now starting to become clear. In doing so, it throws light both on France’s domestic and European agendas. As I have written here before, the French in general enjoy a high level of social protection and have not taken kindly to “posted” workers undercutting them on building sites or driving endless streams of lorries the length and breadth of their motorways. Opposition politicians and trade unions have been quick to talk of unfair competition, unbridled liberalism or uncaring capitalism. Macron knows only too well that such feelings can generate populist reactions of the kind that gave Marine le Pen and her Front National an unprecedented harvest of votes in the recent elections and that were also one the major reasons for the outcome of the Brexit referendum.

However, now that Britain is heading for the exit, its influence on policy waning fast in the halls and corridors of Brussels, is this not an auspicious moment for a young, newly elected and ambitious French President to seize the initiative and, together with Germany, push France's agenda of  “deeper integration”, a coded phrase for more harmonisation along French lines, more regulation, greater protection and less competition, in a word, less anglo-saxon liberalism, of which the UK has always been seen by the French as the champion?  This being said, Macron is also fully aware that French levels of regulation, worker protection and the resulting high levels of public spending are unsustainable and one of the reasons for the higher levels of unemployment in France than in most other EU countries. He even went so far as to point this out himself, clearly for the benefit of French public opinion, in a joint press conference with the Austrian Chancellor, Christian Kern, in Vienna last week. The question is therefore, how far can Macron go in reducing these levels of regulation and protection while ensuring that their basic principles gradually spread to the rest of the EU but still stay strong enough in France to stop a majority of voters from expressing populist-driven rage at the next election?

At a time when many in France see the forthcoming reform of the French labour market as little more than a capitalist plot to give more flexibility to employers to the detriment of workers’ rights, it is therefore significant that Macron is seeking to curtail competition on labour costs from the rest of the EU, and particularly its newer and poorer members, by insisting on reining in the effects of the posted workers directive.  Of course, those members would like to enjoy the same generous levels of heath care and pension provision as those enjoyed by French workers and pensioners. Eventually, they probably will. The issue for them, as for all other members of the EU is how best to achieve it and how long it will take. Macron’s preferred solution is more widespread French style regulation and he is starting to sketch out the series of compromises necessary to persuade other members to adopt it. He seems prepared to offer a (slightly) less regulated French labour market and greater fiscal discipline. What will he expect in return? For Poland, for instance, to step back into line on democratic freedoms and the rule of law in return for continued unrestricted access for its workers to the rest of the EU? For Hungary and the Czech republic to take in more refugees in return for continuing massive regional aid from Brussels? For Germany to relax somewhat its strictures on fiscal deficits and show greater solidarity with other members of the Eurozone as a price for its industry’s privileged access to a market of 500 million consumers?

A lot, some might say the very future of the EU itself, will depend on what compromises are struck and, crucially, how they are sold to national public opinions.  The forthcoming meetings on the reform of the posted workers directive will give a first clue, as will, in the middle distance, the political horse-trading over the future Presidents of the European Commission and the European Central Bank. This autumn, we should have the ECJ ruling on Uber v. Barcelona, that will establish whether Uber is considered under EU law as a mere digital platform or, on the contrary, a fully fledged employer subject to licensing regulations and the attendant obligations towards its workers.  In any event, Macron’s ideal spin will be: “no need to fear too much deregulation or EU low-cost competitors because they are now, thanks to France, moving towards our levels of worker protection”. Not only will such talk be designed to reassure French public opinion but, more fundamentally, it will be true to the agenda of integration and harmonisations that France has pursued ever since the start of the EU. The original grand bargain was massive support for French agriculture in exchange for tariff-free access for German industry to the rest of the area, overseen by a French style administration in the shape of the European Commission.  General de Gaulle, it may be remembered, was adamant that the UK should not be allowed to pollute the EU club with its anglo-saxon economic liberalism and vetoed its entry in 1963. Another Frenchman, Jacques Delors, President of the Commission from 1985 to 1995 was the leading light behind other major advances in integration, like the Schengen agreement (1985) the single European act (1986) and the Maastricht treaty (1992) that established the Euro, after President François Mitterand had been instrumental in persuading Chancellor Helmut Kohl to give up the Deutschmark for the single currency, in exchange for France's support for German reunification.

Many years and many more member countries later, but once again without the UK, the time could be ripe for the next grand bargain. It will take some time for its contours to become visible but President Macron and his administration are already working on it. Engaging the governments of the poorer countries of the EU is clearly the first move in an interrelated sequence of events that will take some years to play out.

Thursday, 24 August 2017

"La rentrée"

Back in April, I wrote ("School's out "- April 11) that for most people in France, life tends to revolve around the school year, with parents, grandparents, resorts and tourist offices throughout the land planning their day-to-day activities according to whether children are in or out of school. The most typical sign of this national obsession with the school year is the "rentrée scolaire", i.e "back to school time", when children and parents return from their long summer holiday to an everyday life organised, once again, around the school day.  Well before the date at which all French schools re-open their classrooms, the media are full of talk about "la rentrée", from the amount of a special back-to-school allowance for less well off families to the impressive list of exercise books, textbooks, pencils, compasses, rulers and calculators that schools prescribe according to the grade in which their children will return to school. The back-to-school allowance is paid out this week and anyone in a bookstore, stationer’s or supermarket will witness the unmistakable sight of mothers (usually) and their children seeking out the supplies they need and ticking them off on a long list provided by their school.

To underscore the importance of this landmark event in French national life, the term "rentrée" is also used extensively in connection with other activities that spring back to life after the long summer break: No self-respecting political party or important national politician would miss "la rentrée politique" during which political parties organise their "summer universities" at which their leaders, for the benefit of their activists and a freshly attentive public, state or restate their policy aims and programmes. Trade union leaders vie with each other to be the first to make their "rentrée syndicale" at which the dates of the autumn’s street demonstrations and protest marches will be proclaimed or confirmed. This year, the country has already been put on notice that a national day of action will be held on September 12, undoubtedly to protest about labour market reform on which negotiations have been quietly proceeding during the summer. According to whether the unions are mildly or severely angry about the government’s promised reforms, "la rentrée sociale" (a time-honoured euphemism for autumn street demonstrations and marches) will be either tense (agitée) or calm (apaisée). Unless of course the government manages to drive a wedge between the main unions, in which case it is more likely to be a damp squib. As we have yet to see the full details of labour market reform, it’s difficult to predict the flavour of the coming "rentrée sociale", but there is little doubt that it will take place in one form or another.

In a totally different area, "la rentrée littéraire" is the best time of year for established writers to bring out that long-awaited new novel or for less well-known ones to hope for a breakthrough. All this frenetic publishing activity is of course intended to stimulate interest in the prestigious literary prizes (Prix Goncourt et al.) that are awarded later in the autumn.

As talk of "la rentrée" invades the media and its reality takes over everyday life, it is perhaps worth remembering that its all-pervasive nature, from Strasburg to Brest and from Marseille to Calais, is surely no accident of history, but on the contrary, one of the many small everyday signs and symbols of the drive for national unity that is one of the country’s most enduring characteristics. In an interview on "The identity of France" with "Le Monde" shortly before his death in 1985, the historian Fernand Braudel referred to the concept, coined during the Revolution, of the "Republic (being) one and indivisible" and concluded: "One of the components of France’s identity is this need for concentration and centralisation, against which it is dangerous to act."*

This blog is glad to make its "rentrée" and looks forward to the many and varied events on which to comment in the coming (school) year!

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

Sunday, 6 August 2017

There is no such thing as a free lunch. Part 3: health care

The French have a reputation for hypochondria that is not entirely undeserved. Molière’s famous comedy “Le Malade Imaginaire” (usually translated into English as “The Imaginary Invalid”) still resonates strongly with audiences, nearly 350 years after its first performance. They watch with glee as the hero, Argan, groans and grumbles about his imaginary ailments, follow the many and various remedies proposed to alleviate them and perhaps too, secretly identify with his deepest desire to have his daughter marry a doctor.  In everyday conversations, health issues are never far below the surface and there are many who take their cue from the everyday greeting “how are you?” to tell you exactly how they are, in every possible detail.

This predilection of the French for their own health is surely one of the reasons why they have chosen to give themselves one of the best and most generous health care systems in the world, in terms of quality, availability, medical technology and cost to patients. But it is also, in its way, the ultimate free lunch inasmuch as the vast majority of patients are oblivious to its true costs. Latest developments are likely to conceal them even more.

Health care is under the authority of a large administration that also manages pensions and family allowances. It raises revenue from compulsory earnings-based contributions from employees and employers, the latter paying the larger share. Employees can, if they so wish, trace on their pay slips the amount paid by themselves and their employers, but most don’t bother, being primarily interested, naturally enough, in their take-home pay. They therefore tend to discount, not to say take for granted, the real cost of their health care and pension entitlements. The self-employed, also subject to compulsory contributions, are a little more conscious of what they pay, but full tax deductibility goes some way to deadening the pain. In 1991, in view of the increasing deficit of the entire social security system, a new tax, called the contribution sociale généralisée (CSG) based on all sources of revenue was introduced and a little later a special and “temporary” levy designed to pay off the system’s mounting debt. The rate at which the CSG is levied has steadily increased, from an initial 1.1% to the current 7.5% and the temporary levy is still in force. Although the government initially maintained that the CSG was a tax based on all revenue and therefore not specifically a "social contribution", the European Court of Justice found otherwise and ruled, in 2015, that non-resident recipients of dividend and other income from French assets were not obliged to pay CSG because they don’t benefit from health care in France.  It is also clear that increasing life expectancy and the fact that most people require more health care as they grow older can only increase the system’s annual deficit and lead to further escalation of its accumulated debt. Governments sometimes manage to contain the deficit and declare triumphantly that it has been reduced from, say 11 billion euros to 3 billion, always failing to add that the debt remains and grows bigger every year.

The way the system works makes it easier to understand how the deficits and debt continue to grow. Patients may consult the doctor of their choice, within limits, pay the doctor directly for the treatment they receive and are refunded almost the entire cost by the health care system. Doctors, for their part, do not only make a diagnosis and prescribe the appropriate treatment but are also keen to give their patients “value for money” because they are also their clients! It is here that the essential difference between the French system and those of many other countries can be found – and it goes a long way to explaining why French public expenditure and national debt is so huge. In the U.K for instance, governments allocate fixed budgets to the health trusts that administer the National Health Service and they have to make the difficult choices about how to spend it. In the U.S, for those not on Medicare or Medicaid, insurance companies call the shots. In France, difficult choices are avoided inasmuch as health care costs are generated by medical professionals, refunded to patients with few questions asked and the total amount of expenditure is recorded at the end of the year. Unsurprisingly, it invariably turns out to be higher than revenue.

It is the kind of system that encourages people to spend more or less what they like on their healthcare and doctors have little reason not to give them what they want. Two examples suffice to prove the point. When CT and MRI scanning machines were introduced some years ago, there was brave talk of limiting their use only to the most serious cases. Under pressure from patients and doctors, these types of investigation are now widely available and used routinely in establishing a diagnosis, regardless of the cost. In terms of drugs prescribed, the top ten most costly drugs for ailments like rheumatoid polyarthritis, diabetes, high blood cholesterol levels and some forms of cancer cost over €23 billion in 2014. The third most costly drug was the lowly Paracetamol, at just over I euro for 16 tablets.  Mainly under pressure from patients, steeped in the generalised “refund culture”, doctors added €321 million worth of this mild, over-the-counter painkiller to their prescriptions in the same year. The system is also generous in terms of surgery. In the U.K, patients over the age of 80 cannot normally expect to have hip or knee replacement operations on the NHS. Nasty words like discrimination and rationing are avoided but that is what it amounts to. In France, patients between 80 and 90, all other things being equal, can have their hips or knees replaced, fully refunded by the health care system. Any whiff of health care rationing on the basis of age, or any other criteria, is anathema.  Quite rightly so, most in France would argue.

Conscious of escalating liabilities, successive governments have not been unsuccessful in streamlining the system and cutting its costs. The old paper based refund system has been largely replaced by a state-of-the-art card-based data transmission network; uncomplicated surgery is performed increasingly on an out-patient basis and doctors have been encouraged to prescribe a greater proportions of generic drugs, although of course the most recently developed, and therefore most effective and also most costly drugs are still under patent protection. There is always talk of making patients more “responsible” but there are huge built-in incentives not to be. On top of the half-concealed payroll costs, the previous government introduced legislation to oblige companies to provide top-up health care insurance for all employees, as a way of transferring more costs to the insurance companies. In addition, generalised third party payments have been introduced for everything. Most patients now just have to produce their health care entitlement card when they consult a doctor, pick up drugs at a pharmacy or undergo surgery in a hospital or clinic.

Is there any way of slowing the inexorable upward path of health care costs in the French system and bringing them eventually back into balance? The omens are not good. The system itself, because of the way it works and because its real costs are so well concealed from patients, is highly biased towards more expenditure. Not only is there a very strong culture of seeking medical treatment at will and simply passing the bill on to the system, but in addition, the recently introduced third party payment, and the top-up insurance paid for by employers are powerful disincentives for patients to economise on their health care or pay for more of it out of their own pockets. Emmanuel Macron’s electoral promise to replace employee health care and unemployment insurance contributions by an increase in the CSG is in the same vein. The political advantage of such a move is obvious: employees will see an increase in their take home pay (pensioners of course will see the opposite effect). However, tilting the burden of funding towards the CSG, which is largely deducted at source, will make the costs of health care even more opaque. As one commentator pointed out the other day, the overall effect of this measure will be to increase the amount of tax (VAT and CSG) deducted at source and therefore, supposedly,  “painless”, while income tax, for instance, paid by an ever smaller proportion of households, will account for an ever smaller proportion of overall tax revenue.

The conclusion that can be drawn from all this is that one of the major components of public spending, that the current government is committed to cutting, is more than likely to continue growing, unless restrictions are introduced to oblige French patients to pay more of their health care costs out of their own pockets and therefore become less spendthrift. Such moves would undoubtedly cause a huge outcry and will probably never be seriously considered. Overall therefore, it doesn’t look as if this particular free lunch will be made less nourishing any time soon.