Wishful thinking !

President Macron’s address to the nation last Sunday evening was, as usual, long on rhetoric and short on detail. Apart from the announcements of further steps to relax the lockdown and order most children back to school on June 22nd, there were few clues about the future direction of economic policy and above all, what, if anything, will be done about the huge accumulation of debt over the past three months of the crisis. The only clear promise was that there would no increase in taxes; the French would simply have to “produce more and work more”. 

The economy minister, Bruno le Maire, was on the radio on Monday morning to fill in a little detail: what the President meant by the French working more, he explained, was that more of them should be in work, meaning, presumably, that efforts would continue to reduce unemployment, but not that each worker, heaven forbid,  might have to work longer hours or take shorter holidays. The overall effect of “more work” would be to increase economic growth and that this alone would gradually reduce the debt. Without being quite as severe as Alex Massie, a British journalist who wrote in “The Spectator” the other day about a UK cabinet minister, that “the spectacle of intelligent people deliberately peddling nonsense is often aggravating but it’s rarely as enraging as it is now” , there are several reasons to believe that such talk is no more than wishful thinking and that, what is more, most people in France and, more importantly, in its government, don’t take it very seriously.

The first is the past record of France’s economic growth and unemployment. Over the past 20 years, basically since the introduction of the Euro, France’s GDP growth has rarely exceeded 2% a year. After 2009, when it fell by 2.9%, it has exceeded 2% only twice and has generally bumped along at about 1% a year. As for unemployment, it has remained stubbornly high, at around 10% over the same period and only started falling consistently but slowly, to 8.5%, in 2019. While there is likely to be a spurt of catch-up growth after the Covid induced downturn, there is little reason to expect growth rates to double and unemployment to halve in the next few years. Even less likely considering the amount of new debt that will have to be paid off. And yet those are the kinds of trends that would be necessary to create real wealth and pay off debt. State intervention in the economy will not make things any easier. Renault, for instance, of which the state holds 15%, has just been granted a state guaranteed loan of €5 billion, but on conditions that it does not close down too many factories in France and lay off too many French workers. Peugeot, also part owned by the state, was intending to bring to France a few thousand workers from Poland to help it cope with post Covid demand. In the face of objections from government and the unions, it has had to scale back the numbers. Nobody will be surprised at the continuation of the age-old French tradition of government meddling in industry, either openly or simply by a nod and a wink to business leaders. Indeed, there are undoubtedly justifiable reasons for it, but it is hardly compatible with the robust rates of growth that would be required to put France’s public finances back on an even keel.

The second is the size of France’s debt and the extent of its social safety net. In his address, President Macron said that the state has “mobilised” €500 billion to deal with the Covid crisis, demonstrating, he went on, “the strength of our state and our social model”. The figure is eye-watering and it covers a multitude of different policies. Some of it is in the form of state guaranteed loans to companies and industries. Many of the underlying loans will be repaid one day and the guarantees will not be needed. Some of it will be invested in research and development, where the hope is that the eventual return will be higher than the cost of capital. In addition, some of the extra debt is held, and will continue to be held, on the balance sheet of the ECB. As long as it stays there, it will not need to be repaid, and because of low interest rates and the payment of dividends to the state from the central bank, will cost nothing. The ECB has undertaken to keep that debt on its balance sheet until the end of 2022, but is likely to be prevailed upon to extend that term. This nevertheless leaves a sizeable chunk of debt that has financed, and continues to finance, current spending and that will have to be paid off: the huge bill for Covid related health spending; the deficit of the unemployment fund and furlough payments, twice as generous as corresponding payments in Germany according to an expert on the evening news a few days ago; the continuing deficit of the still unreformed pension system. And even if taxes are not raised, they will surely not be lowered and will remain among the highest of the OECD countries. An instructive case in point is the sinking fund for social security debt, the CADES (Caisse d’Amortissement de la Dette Sociale) a kind of bad bank for social debt that was set up in 1996, siphons off about €16 billion of tax revenue annually and was supposed to have paid off its €45 billion of outstanding debt by 2009. Now holding debt of €260 billion, due to be paid off by 2033, it is to be saddled with an extra €136 billion, according to newspaper reports (notably in “Le Canard Enchainé” of June 10^th), only some of which is Covid related. The tax that funds the repayment of this debt, the CRDS (Contribution pour le Remboursement de la Dette Sociale) is the kind of tax of which finance ministers dream, with its huge base and very low rate. It will now go on until at least 2036, continuing to deduct seemingly imperceptible amounts from monthly pay slips and annual income tax statements, but never making the headlines on prime-time news or appearing on placards in street demonstrations.  In addition to all this existing debt, the health minister has just announced that a fifth branch of welfare spending, on top of health, family allowances, pensions and work-related accidents, will be created to fund social care for the elderly and dependent. Again, a perfectly respectable and even admirable move given the increasing number of dependent elderly people and perfectly in line with French people’s expectations of their generous welfare system, but likely to cost, according to some estimates, upwards of €30 billion a year for many years to come. Presidents Sarkozy and Hollande both considered introducing this big dose of additional social spending during their terms but decided not to go ahead when they found out how much it would cost. The current government has simply announced this new policy but said nothing, as yet, about how it will be financed. But, we are assured, no new taxes will be introduced and existing taxes will not rise.  It will all be financed by economic growth.

A further reason, and more insidious consequence of Covid related spending and the resulting debt, is that it makes it that much harder for public opinion to believe that money cannot be found for anything.  Boris Johnson was wont to say, before the Covid crisis struck, that there is no such thing as a “magic money tree”. And yet Macron’s headline figure of €500 billion will make it look to everyone as if he has conjured up a huge and bountiful one within just three months! The effect this will have on the presentation and negotiation of future policies is as yet untested but could be profound. Why quibble, negotiators of pay increases for health and other front-line workers might argue, about a pay rise of a mere €200 - €300 a month when the state can find €500 billion within a few weeks? Why reduce unemployment benefits or curtail furlough payments when the extra cost is just a few million a year? Even with the highly controversial pension reform, which may be back on the agenda before the end of the year, it was estimated by the most militant union leaders that the existing system needed only €8 billion a year to balance the books. Is this not chickenfeed compared to €500 billion? 

Once again, and probably more urgently than ever, the sustainability of France’s generous welfare system is on the line. Nobody really knows what overall impact this vast run-up in debt will have in the longer term and in the absence of meaningful reform. The ECB will eventually hit the limits of expanding its balance sheet and when it does, long term interest rates will rise. Some economists believe that the headlong money creation of the last three months can lead only to monetary inflation or to the formation of bubbles in real estate or financial assets or both. When these bubbles eventually and inevitably burst, the impact can be cataclysmic, as we witnessed at the bursting of the “tech bubble” in 2000 or the “subprime” crisis of 2008. However, it seems fairly safe to assume that when these things actually happen, Emmanuel Macron will have long since left the Elysée Palace, even if he is elected for a second term, and today’s crop of militant union leaders will have been replaced by perhaps even more militant ones. By that time, my four grandchildren, all of them currently under twelve, will be at university or in further training and looking for their first job.

So, what else is new? Or as the French might put it, “plus ça change, plus c’est la même chose”.

Entrenched inequality

The protests and demonstrations all over the world after the killing of George Floyd in Minneapolis have exposed a festering little hypocrisy in French society. An unauthorised demonstration in front of the main court building in Paris last week, called only on Facebook, attracted, to general surprise, an estimated twenty thousand people at a time when large demonstrations were still banned because of the risk of spreading the coronavirus.  The immediate reason for the protest was the death in police custody four years ago of a young black man called Adama Traoré, the cause of which has never been unequivocally established and which members of his family and community attribute to unwarranted police violence during his arrest. The shocking death on video of George Floyd under the knee of a white police officer has triggered a fresh call for “Justice for Adama” that the demonstrators feel has never been done.

Racism targeting black and brown people in France is as prevalent as it is in many other countries.  What is different in France however is the way it is treated by the state.  A time-honoured tradition, originating in the revolutionary era of the late 18th century, holds that the population of France is not made up of different “communities”, but only of “citizens” with equal rights in a “one and indivisible republic”. A lofty ideal indeed, but one that has been badly battered by subsequent developments in society, particularly since the start of large-scale immigration in the middle of the 20th century.

The problem starts with names and expressions. Whereas in the UK for instance, one hears constant references to BAME (Black, Asian and Minority Ethnic) communities, in France there is no such designation. Sociologists and statisticians are not allowed to gather any specific information about such “communities” as officially they don’t exist. The furthest the Prime Minister, Edouard Philippe, was willing to go in a nicely phrased soundbite the other day was to refer to “a part” of French society that felt that “the republic was not doing enough to protect its children”. Present Macron followed up a day or two later referring to racism in general as “a betrayal of republican universalism”. It follows, understandably therefore, that the term Afro-Américain used widely by French journalists to designate George Floyd is rejected by many. “Why Afro-American?” commented one newspaper reader recently. “Would one call someone from Martinique an Afro-French person?”. The guardians of correct French in the newspaper “Le Monde” have made their views clear in their blog: the term Afro-Américian, they write, is discriminatory in itself. George Floyd was, and should be referred to simply as “un Américain”.

Admirable, one might think, in theory, but in practice a definite problem.

While its known for instance that a higher proportion of people have died from Covid-19 in the northern suburbs of Paris than practically anywhere else in France, this knowledge remains purely anecdotal as no statistics are, nor can be, compiled, about different death rates in different communities and neighbourhoods. The northern Paris suburbs are known to house, in huge and unattractive housing estates, large numbers of people who are described in the media as “people of immigrant origin”. They tend to be poor, often have large families and small apartments, and are more likely to be either unemployed or employed in unskilled jobs as casual and sometimes unregistered labour.  In terms of security and policing, these areas, euphemistically referred to as “difficult neighbourhoods”, are known to harbour thriving hubs of drug trafficking and other underground activities.  Anyone wishing to find out more need go no further than the novels of Olivier Norek, a former police officer turned author and script-writer (Code 93 or Territoires) or films like Les Misérables, by Ladjy Ly, brought up in one of the neighbourhoods he depicts in his film. Its title is deliberately lifted from Victor Hugo’s eponymous 19^th century novel and last year, it won the jury’s special prize at the Cannes Film Festival before being in contention for the best foreign movie at the Oscars.  Another landmark film, “La Haine” by Matthieu Kassovitz is now 25 years old.

Nobody in France, least of all in government, can therefore deny that there is a problem and that it has been around for many years.  The police, who are supposed to maintain “republican order” in these “difficult neighbourhoods” know full well who and what they are up against but have not always displayed sound judgement and great skill in doing their job, to say the least. For their part, youths from black and North African communities constantly complain of being subject to police harassment and sometimes violence. Cases like that of Adama Traoré or that, over ten years ago of two black teenagers who took refuge and were electrocuted in an electricity sub-station after being chased by police, regularly hit the headlines and trigger violent demonstrations. And although there are clearly racist tendencies in the police, as the discovery of a closed group of police officers on Facebook, riddled with racist comments, demonstrates, these exist in all parts of society and police representatives are quick to point out that they are often unfairly singled out for criticism in doing their job.

Despite special efforts to promote children of immigrant origin (anonymous CVs for job seekers, special scholarships at universities and “grandes écoles”etc.) which in any other country would be called positive discrimination, one can’t help feeling that national unity might be better served by officially admitting that specific communities are victims of specific discrimination and trying to get to grips with the detail and extent of the phenomenon. The recent demonstrations, sparked by the killing of George Floyd and calling for a reopening of the case of Adama Traoré, show that anger and indignation in these communities run high. Many other demonstrations have taken place since, all over France, in which the demonstrators are largely black, and posters inscribed with “Black Lives Matter” and “No Justice, No Peace” are prominent. The public debate was given a further twist yesterday when the government spokeswoman, Sibeth Ndiaye, black and of Senegalese origin, spoke in favour of breaking a taboo and compiling “ethnic statistics” only to be roundly contradicted by President Macron a few hours later, who said that only specific anti-discrimination measure can be envisaged.

Republican values on citizens and equality strike a chord in the French national psyche and for many French people are one of the big and positive differences between France and countries like the UK and, above all, the US. But France’s numerous and able statisticians would surely be quick to remind politicians that they can’t properly manage what they can’t properly measure.