Amazon in France:a love-hate relationship!

In just a few years, the Internet giants that even French journalists now call “les GAFA”, have made as profound an impact on everyday life in France as in most other countries. In doing so, as perfect examples of digital-driven globalisation, they have generated highly ambivalent attitudes among consumers. Quite often, the same people who engage with them intensely on their desktops or smartphones on Saturday, will vote for avowed anti-globalisation parties on an election Sunday. This ambivalence became clearer to me through two recent chance encounters.

The small Breton seaside village in which I have spent most of my summer holidays for the past 40 years has a population of about 500 for most of the year that swells to more than 10,000 during the peak tourist season. Thanks largely to the income from tourism, the village can support a small supermarket, a doctor’s surgery, a pharmacy and, somewhat surprisingly perhaps, a small bookshop selling books, maps, postcards and the like. They all manage to stay open throughout the year. This in turn means that the village is still a reasonably balanced community with people of all ages, including enough young children to justify a small primary school. It has thus escaped the fate that has befallen so many small villages in France that do not have the attraction of long sandy beaches and boat trips round the islands.

Although, like many people in France, I buy most of my books these days on-line and read them increasingly on a Kindle or similar device, I always make a point, to salve my conscience perhaps, of buying my summer holiday postcards from the bookshop in the village. I was in there doing just that this summer when another customer came in and asked for a book that the bookseller told him was out of print. He said he would try and find it through his “own network”, as he put it. Oblivious for a moment to the thin ice I was about to fall through, I ventured that it might perhaps be found on Amazon or the Amazon market place. This caused the bookseller, normally an affable and mild- mannered man, to launch into a long and blistering attack on the Amazon “bandits” who pay no taxes in France and who even manage to have their VAT refunded! The survival of his shop in the village, he went on, was due mainly to the fact that, under French law, all new books are sold at one and the same retail price regardless of their distribution channel, as well as to the presence of the supermarket, the primary school and the pharmacy next door. If it weren’t for all that, he concluded, he would have to close down his shop as there was no way it could survive by being open only during the summer.

Many politicians of course, and not just on the extremist fringes, have had a field day exploiting such sentiments and the popular media are quick to relay the complaints of “hard-working over-taxed small shopkeepers” confronted with the “freeloading Internet giants” like Amazon.  You have to go to the more serious media to find out that, at the instigation of governments confronted with the same phenomenon throughout the EU, the European Commission, among others, is working hard do something about what it calls “aggressive tax planning”. It is indeed abundantly clear that the GAFA, together with many other multinational corporations, have devised sophisticated tax optimisation strategies to avoid having to pay high rates of corporate income tax in relation to their actual sales and profits in a particular country. One article I read showed a detailed diagram tracing the multiple financial flows between national subsidiaries towards holding companies in Luxembourg, the British Virgin Islands and the State of Delaware, where corporate income tax can be minimised. As an example of one of the many and various national, EU and OECD initiatives that are currently on the drawing board, the European Commission is working on a “CCCTB (common consolidated corporate tax base) directive”. If adopted and implemented, this directive would oblige the GAFA to consolidate their revenue from all countries in the EU and pay an agreed level of tax that would be apportioned to the member states on the basis of the revenue generated in each one.

Whether the CCCTB directive, if and when it eventually comes into force, will make the position of my village bookseller any more secure is a moot point. But it would in theory put him on an equal footing with Amazon in selling books, and maybe, all other things being equal, ensure the continued presence of his bookshop in the village. That being said, as Internet becomes more and more prevalent, consumers clearly find it more convenient to buy books, as well as many other items, on-line, as the large number of other on-line booksellers testifies, not to speak of Amazon’s smothering embrace of many other retail markets.  But Amazon will probably continue to be a convenient popular scapegoat for the inevitable ills of globalisation.

But there is of course, as always, another side to the story. It makes fewer breathless headlines but will probably have an equally lasting impact. It concerns the investments made and the jobs created by the Internet giants. The GAFA have made substantial investments in France, in European or national headquarters, flagship stores, research laboratories and, as far as Amazon is concerned, logistics centres.  Over the last ten years or so, it has built four large logistics centres in France. It is building a fifth in the north of the country, an area hit by industrial decline and high unemployment, and has just announced its intention to build a sixth in the Paris area. To date, it has created about 5000 jobs.  Naturally enough, it has been encouraged to do so by generous public investment subsidies, including one of over €1 million for the building of a giant warehouse in a part of rural France where the former “minister of productive investment”, Arnaud Montebourg, used to be an MP. During his ministerial tenure, he was mainly known for his “buy French” campaigns and occasional violent criticism of globalisation. In this case, he clearly used his ministerial powers of persuasion to help the local authorities clinch a deal with Amazon.

Nor is it entirely accurate to accuse Amazon of paying no taxes at all in France. Like any business, it pays local property and business taxes and, more importantly, contributes through compulsory payroll levies to the health care and pension provision of all its French employees. One of them is a young woman I was sitting next to on a plane last year. Definitely a member of the Y generation and a child of globalisation, she was on her way to Tokyo to take up her first job as a junior manager for a French logistics company operating in Japan. A few days after my conversation in the bookshop, I found out, through LinkedIn, that she has now returned to France and taken up a position as area manager at one of Amazon’s largest logistics centres in France.  She is no doubt happy to have a good job doing what she trained to do in school.

Whether her story will be of comfort to the village bookseller in Brittany is a matter of some doubt. She, after all, is a winner from globalisation whereas he is a potential loser. I nevertheless hope that I shall still be able to buy my postcards in his shop for a few summers to come.

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.

"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.

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.

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!

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!

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!