Life behind the lines

France is at war according to President Macron in his televised address the other day – at war against an invisible and elusive enemy (un ennemi invisible et insaissisable). The view from the front line is brought to us every evening on the 8 o'clock news, with scenes (often the same from one evening to the next) from hospitals and care homes, helicopters, aircraft and specially adapted high-speed trains, all taking critically ill patients from hospitals that are full to others, all over France, that are not, but also to neighbouring German and Swiss hospitals, interspersed with gut-wrenching interviews with admirable and overworked medical and nursing staff.

Life behind the lines is a lot less dramatic, even if we are constantly reminded that we are all doing our bit for the war effort by staying at home. On the first morning of lockdown, I dutifully filled in my attestation de déplacement dérogatoire, wondering what we would call this marvel of French administrative prose in English. One British journalist writing about events in France referred to it, rather pompously, as “an exeat” – somehow, I can’t imagine a policeman asking me for my “exeat”! But then no UK government would dream of imposing such a constraint in the first place. An English friend wrote that she wasn’t happy about being told what to do and what not to do; I answered that the French weren’t either, but that they are more used to it – and more used to finding ways around it.. That being said, it’s now almost three weeks since the lockdown was imposed, and I have seen neither hide nor hair of a policeman, let alone been challenged to produce my document. Keen to make well-publicised examples of motorists fleeing down the motorway to their second homes, they obviously don’t bother to venture into the smallish town centre, and certainly not the side streets, of a quiet residential suburb.

And quiet the streets are. Eerily quiet. No sound of cars driving to work in the rush hour, just the sound of birdsong early in the morning. I even heard a seagull yesterday, obviously not taking confinement very seriously.  The hoardings for the first round of municipal elections on March 15^th, that now seems months ago, have not been removed.  Work has stopped on most building sites, including that of a major rebuild of the local technical college, but not, curiously, on complex and heavy lifting engineering work to repair an embankment that subsided onto our local railway line at the beginning of February. A dozen workers toil six days a week, with helmets and heavy-duty gloves, but without facemasks, and hope to have finished by the time we are deconfined. The only other sounds that float up to our open fourth floor windows are kids tearing round the garden of our building on their bikes and a lone teenager bouncing a basketball before practising his throws. In the road outside, a father sets up makeshift goalposts every afternoon, quickly removed if a car comes by, to play football with his four children.

The French are reputed to be an unruly lot but everybody I have come across on my daily walks to the shops or around the neighbourhood observes strict social distancing, crossing the road if they see someone coming towards them and waiting quietly outside shops behind the floor tape markings, one meter apart. Yesterday, I met a neighbour walking towards me on the same side of the road. As he normally cycles to work and takes long cycle rides at the weekend, I asked him, from a safe distance, why he hadn’t taken his bike out, realising as I said it that nobody is supposed to stray further than 1 kilometer from home.  To my surprise, he answered “No, I wouldn’t do anything like that” (Non, je ne m’autoriserais pas cet écart). Would the French be as civic spirited if there weren’t the threat of a fine? Some certainly wouldn’t, but my feeling is that the vast majority would, a situation not very different from that of most other countries faced with this nasty epidemic.

Municipal parks and woodlands being closed, the only places where you are likely to meet more than one person at a time are the shops. As our fresh food market was closed down just after the start of lockdown, I have fallen back, like many others, on the local convenience store which is just a ten minute walk away, as well as the local bakery; deprived of freedom to roam is one thing, doing without a crispy baguette is quite another! After the initial panic buying, mainly of foods like pasta and flour rather than toilet rolls (the French have their priorities right!) the shops are now more or less back to normal. As each palleted delivery arrives, every single employee I have ever seen at the shop descends on the aisles, unpacking, stacking the shelves and piling up flattened boxes. French labour laws are reputed to be notoriously inflexible but this shop, like many others, seems to have worked effectively around their constraints.

Lockdown started on March 17^th and has now been extended in two stages beyond April 15th. President Macron will be on nationwide TV on Monday evening to tell us what’s next. Judging by the Chinese experience, we could be in for another month, maybe more. With or without compulsory facemasks, still in short supply and reserved for health care workers only?  With a massive campaign of blood testing that our German neighbours seem to be able to organise with consummate efficiency, or without? With a “Stop Covid” mobile phone app. designed to trace our movements, that has sparked the predictable debate about civil liberties and the protection of privacy? As if the very fact of confinement were not in itself a massive restriction of personal freedom. We shall undoubtedly find out more on Monday, but these are all areas where the French government, like many others, has clearly been caught napping. A week ago, I made myself a makeshift facemask using a piece of cloth and two elastic bands, on the basis of a YouTube demonstration by the US surgeon general. A daughter-in-law has gone one better and put her sewing machine to work for the whole family; two very professional looking facemasks turned up in the post on Friday morning. Like most people, I’m not sure now useful if it is as a protection from the virus, but it is psychologically comforting when you are in a confined space like a shop or a pharmacy. As for blood testing, imagining myself an asymptomatic carrier, I asked a nurse who came to the house yesterday when she thought the local testing laboratory would be able to run blood tests on request to find out who has developed antibodies and who hasn’t. She looked blank before answering that it would take at least another two weeks. That takes us to the end of April. Kids are supposed to go back to school on May 4^th, but that seems more and more unlikely.

We shall no doubt find out more on Monday evening.

Whatever it takes !

The former President of the European Central Bank, Mario Draghi, will go down in history for three words that he uttered at the height of the Euro crisis in 2012. His famous sentence “The ECB is prepared to do whatever it takes to preserve the Euro” pronounced on July 26, 2012, is widely credited with having saved the Euro from imminent collapse. For his nationwide TV address on the coronavirus crisis last Thursday evening, President Emmanuel Macron found an excellent French equivalent. The French government would take every necessary measure to protect the population and the economy, “quoi qu’il en coûte”, he declared.

It is of course an enduring feature of French history that in times of crisis, when the people are not rising up to try and overthrow their government, they expect it to take the lead in organising and financing whatever measures appear necessary for the common good. During his short presidential term, that has not yet run three years, Emmanuel Macron has already experienced both types of crisis – the “gilets jaunes" movement with its attendant insurrectional violence in late 2018 and early 2019 and today, the coronavirus crises. In his nationwide address on Thursday evening, he did not disappoint, stating no less than three times that the state would do its duty “quoi qu’il en coûte”. His stated reliance on expert medical opinion, an implied sideswipe at conspiracy theories flourishing on social media, also sounded convincing, at a time when, as “The Spectator” put it the other day, “a social media lie often has greater power than the considered opinion of an expert”. I found myself thinking that for someone who had had so little political experience before being elected President, he has come a long way since May 2017. Can anyone seriously imagine the self-styled leader of the opposition and candidate against Macron for the presidency in 2017, Marine Le Pen, delivering such an address?

The “whatever it takes” will nevertheless have a high cost. Bruno Le Maire, the finance minister, spelt out the next day that “several dozen billion Euros”, would be needed to fully compensate businesses obliged to put their employees on short time work, pay out loss of earnings to employees and the self-employed, postpone tax and social security levies etc. etc.  And that was before Saturday’s announcement by the Prime Minister that cafés, restaurants and other non-essential services would be closed down for an indefinite period. The commitment is clearly open-ended as nobody knows at this stage for how long such measures will be necessary. And the fiscal impact will be substantial, meaning that, “the 3% deficit target demanded by Brussels will not be met this year”, as a radio journalist unhelpfully and inaccurately noted. Of course it won’t, but then it hasn’t been for most of the past 40 years. 

Taking a big step back from the fast-moving situation of the coronavirus epidemic, not only in France but throughout Europe, it is sad but true that so many countries have made no serious attempt during the boom years to tackle the underlying reasons for the expansion of public spending and implement the kind of structural reforms that the OECD for example has been urging for years, rather than take the easy way out by starving essential public services of cash that only the state can provide. Had they done so, they would be better placed to face a situation like that of today, in which public spending is both essential and inevitable. Taking just three examples from around Europe, Italy’s public health system has been struggling for years to cope with the austerity that has been imposed on it, UK governments of the past ten years have systematically made cuts to the National Health Service, France’s public hospitals have long been protesting about dwindling investment and staffing levels. Most commentators in France seem to agree that for all his reforming zeal, Emmanuel Macron has done little to curb the seemingly inexorable upward movement in overall public spending, let alone start to reduce it.  To do so, he would need, as many have advised, to initiate a radical reform of the tentacular civil service in order to dramatically increase its overall productivity, oblige the state to relinquish areas of the economy in which the private sector would be better equipped to impose the necessary financial and management disciplines and prepare the national budget for precisely the kind of crisis that France is facing today. None of this of course can be done overnight, and the next major national elections are looming in just over two years’ time. Pension reform, in which many have placed their hopes of stopping a permanent drain on the public purse, has been contested every step of the way and has not yet cleared all of its legislative hurdles. Even if it eventually does, it will not produce tangible results for many years. But in the very real here and now, Emmanuel Macron is facing his second major fiscal splurge in as many years.  

A tale of two companies

February and March are the months in which companies all over the world release their financial results for the previous year. France is no exception and the results season in Paris is now in full swing. Two companies particularly are in the public eye at this time: Aéroports de Paris (ADP) and La Francaise des Jeux (FDJ). Their respective destinies are an interesting illustration of French peoples’ contradictory attitudes to companies in general, their role in wealth creation and the role of the state as a shareholder, attitudes which are also reflected in the ongoing national debate about pension reform. 

ADP is the operator of the very lucrative Paris airports of Roissy, Orly and Le Bourget. The French state has a controlling stake in the company but privatised it partially in 2006, during the presidency of Jacques Chirac, keeping just over 50%. Anyone who bought shares at the IPO and has kept them ever since would have seen them increase in value by well over 200%, not counting a regular and comfortable yearly dividend. The current government’s intention to sell its controlling stake to investors has generated a wave of intense and vocal hostility in some sectors of public opinion, to the extent that the whole operation is at best delayed and at worst in doubt.

FDJ is the operator of the very lucrative French national lottery. It was wholly owned by the French state until last November when 80% was sold, effectively privatising the company. The operation was oversubscribed to the extent that orders from small investors were served in totality and larger orders were reduced. The introductory share price was at the top end of the expected range, rose by about 15% after the IPO and stayed there. The announcement of the company’s results for 2019 have boosted it by a further 15%. The government has congratulated itself on a resounding success.

It is difficult to fathom why the prospect of one privatisation has attracted so much popular hostility while another actual privatisation has been such a popular success. Both companies share similar characteristics. Both can be described as “safe”, in the sense that they can both continue to do well in an economic downturn. Both are de facto monopolies, both are well managed by teams of former top civil servants with close links to government, the core activities of both will continue to be subject to some degree of government regulation, both will serve regular dividends. Neither can be moved offshore.

An expression often used by opponents of the privatisation of ADP is that the state is selling its “crown jewels”, an expression that could equally well apply to FDJ. The state wants to privatise ADP “just because it needs the money” is another, often heard, criticism, as if this were a heinous crime on the part of a state whose public debt to GDP ratio is now over 100%. The same point could be made about FDJ but never is.

The real sore point among opponents of the privatisation of ADP appears to be the mooted suitor for the government’s controlling stake, the construction company, VINCI, that took an 8% stake in ADP in 2006 and has made no bones of its ambition to take it over when it is fully privatised. VINCI’s original sin, in the eyes of these opponents, is that it became the concession holder of a large network of French motorways when the state sold them at about the same time as it partially privatised ADP. Since then, the motorways and the company that runs them have been the subject of endless controversy: the tolls are “too high” and have “increased more than inflation” and “motorists are being wildly overcharged”, “the state sold them far too cheaply in the first place”, etc. etc. Few opponents seem prepared to accept the argument, which is hardly ever heard, that large infrastructure projects can either be paid for by the state budget out of general taxation or by their users. In the case of the motorways, there seems to a good economic rationale for the second option as, contrary to public services like the police, the courts, health care, pensions and education that stand to benefit everybody, infrastructure primarily benefits its users, many of whom, it should be noted in passing, are drivers from outside France and not therefore subject to French taxation.  Nobody seems willing to admit either that since purchasing the motorway concessions, VINCI has done an excellent job of managing and maintaining them, that motorists flock to them to speed down South or out West come holiday time, complaining all the way to the toll booths as they go.  Populist politicians, mainly from the hard left, fall over each other to denounce a capitalist conspiracy to cheat the state and gouge motorists.  At the height of the gilets jaunes protests at the end of 2018, toll gates were often delberately opened by protestors and sometimes even destroyed by fire. A number of the perpetrators have recently been convicted of arson and wilful damage by the courts.

Mainly as a result of the gilets jaunes’ demands for a "peoples’ referendum", the French government felt obliged to concede that any issue of “major” public concern could be put to a referendum of this kind if a petition to request it was signed by 10% of the electorate. Opponents from both the left and the right wings of politics were quick to seize this opportunity and launched a petition for a referendum on the privatisation of ADP. They seem very unlikely to gather the 4.7 million signatures necessary by the deadline of March 12th. What the government will do then is uncertain, but it will certainly not take any controversial decision quickly, just a few days before the first round of municipal elections and still embroiled  as it is in trying to get legislation on pension reform through parliament. 

Meanwhile, VINCI has purchased control of London’s second airport, Gatwick, after acquiring a string of Portuguese airports some years ago, positioning itself as a major airport operator worldwide. Like LVMH or Airbus and other successful and world-renowned French firms, it could become another French champion. But strangely, many in France seek to deny it that role. This is all the more puzzling as those who have complained loudly about high taxes, and particularly the gilets jaunes, do not seem to want to realise that the more they ask the state to do, the less likely it is that taxes can be reduced. And the more likely it is that those public goods that so many rely on throughout the country like the police, the courts and other universal public services, will continue to be starved of cash.

Funnily enough, it was France under Napoleon 3^rd in the 1850s that pioneered the concession of public services to the private sector - what would be called “outsourcing” in today’s jargon. Water was the first of them and led to the creation of private companies like Lyonnnaise des Eaux or Compagnie Générale des Eaux, that are still around today, even if in different guises and under different names. Most consumers pay privately owned water utilities for their water supplies without a murmur and many of them are probably unaware that these “public services” are outsourced to the private sector. Telecommunications, after being a state monopoly for many years, is run today by four private sector operators in a competitive market. Now that FDJ has been privatised with a minimum of fuss, the controversy over infrastructure concessions in general and ADP in particular is all the more difficult to understand. To coin a phrase often heard in a country supposedly steeped in Cartesian logic, " c'est pas logique " !

Striking the old year out...

As predicted in my last post, the public transport strike has turned into a battle to influence public opinion between the government and France’s most militant trade union, the CGT. Its secretary general, Philippe Martinez, declared over the weekend that Emmanuel Macron has reached his “Thatcher moment”, meaning presumably that he is determined to fatally weaken the power of trade unions to oppose his reforms. In response, the secretary of state for transport has accused the CGT of trying to bring the country to a standstill and intimidating non-strikers. There is surely some truth in both assertions.

For all its rhetoric, it is easy to forget that the CGT, although strong among train drivers, has seen its influence erode for a number of reasons since the last big public transport strike of 1995. Its former pride of place among unions has been taken by the more reformist CFDT and its leader's stance is not always supported by his own rank and file. It is also worth pointing out that union membership in France in general is among the lowest in industrial countries and concentrated in the sprawling public sector. The spread of the Internet has not only enabled many people to work from home but has also facilitated last-minute on-line reservations for car-pooling rides and trips on long distance coaches and buses (largely liberalised by Emmanuel Macron himself when he was a minister under François Hollande). “How come the trains are empty?” asked one seemingly surprised anchor man on the evening news two days ago, as cameras panned slowly over half empty carriages in high speed trains. The obvious answer seems to be quite simply that many French employees and/or holiday makers have made alternative arrangements to get where they want to go, to work, to join their families for Christmas or take a holiday on the ski slopes. If the usually rapid and efficient trains are seen as temporarily unreliable, they grumble a lot but are quick to find alternatives. Driving of cars, scooters of all kinds, from near motorcycles to electrically driven runabouts, bicycles and walking have increased massively as a way of getting to and from work for instance, and by the time the Christmas holidays end on January 6, strikers, and more importantly, the top managers of the SNCF, will probably have drawn the conclusion that the much feared competition to public sector trains and metros has already arrived. People have been able to adapt and can no longer be stopped going about their business by strike action, as was the case before the Internet era. Some strikers seem to have drawn such a conclusion already and their number has fallen steadily over the past week or so. And thanks to 4G enabled smart phones and mobile apps, it is now possible to see which trains and metros are running and adjust travel plans accordingly. In all likelihood, the strike will eventually peter out, despite desperate and largely illegal action by CGT members to prevent trains running by physically occupying their tracks or temporarily cutting power supplies to some areas.

The government, it must be said, has also, played a skilful hand, even if its announced  grand design of a “universal” pension system had had to be sacrificed for political expediency, in application of the age-old principle of divide and rule: the police force, the fire service, airline pilots, stewards and stewardesses, fishermen and ballet dancers at the Paris opera have all been bought off with promises of specific arrangements for their pension scheme and retirement age, but the determination to put an end to the remaining retirement privileges of many public transport workers and public sector workers in general remains intact.  With some further face-saving concessions in the negotiations scheduled for early January, the government is still likely to have a points-based system for pensions adopted by parliament in 2020 and ensure that when it is finally introduced in 2025, for everyone except those entering the workforce before then, the deficit of between 8 and 17 billion Euros predicted by the official pensions watchdog will have been reduced to zero.

All this being said, the political price that Emmanuel Macron will ultimately have to pay for his probable victory remains uncertain. It was interesting to see for instance that for the first time last Saturday, a street demonstration saw members of the CGT and a large number “gilets jaunes” marching side by side. Does this mean that they have found common ground, and will this show of unity lead to anything? Somehow I doubt it, given that for the moment the only factor that unites them is their intense dislike of the President and their distaste for his reforms.  The next big national test will come with the country-wide municipal elections next March. Macron’s party, la République en marche has invested heavily to prepare them, by selecting or supporting candidates for all of France’s major cities and most towns. The “gilets jaunes” for their part, have not moved on much from their stance as a protest movement and the unions traditionally play a very minor role in such elections anyway.

As we strike the old year out and ring the new one in, the only certainty is that 2020 will be another eventful year for France!

Wishing all my readers a very Happy New Year!

A strike for pension reform

Former French Prime Minister Michel Rocard once quipped that “pension reform has the potential to bring down several governments” (avec la réforme des retraites, il y a de quoi faire sauter plusieurs gouvernements). On Thursday of this week, France will suffer once again what promises to be a more or less total shutdown of public transport in the Paris area, a very limited number of mainline trains in the rest of the country and union sponsored street marches, probably accompanied by masked and helmeted hooligans hiding behind them. Many people who remember the three week long public transport strikes of 1995 are openly wondering whether the current President and his government will suffer the same fate as President Jacques Chirac and Prime Minister Alain Juppé, who were eventually forced to retreat ignominiously and withdraw the pension reform that they had proposed. In 2019, Emmanuel Macron’s chances of bringing his five-year term to a successful close by introducing a reform that has been fiercely resisted every time it has been attempted, hinge on the outcome of this show of force. Be that as it may, it is such repeated failures to bring about fundamental structural reform that have earned France a reputation among foreigners for being ungovernable.

The terms of the current conflict are deceptively simple. Back in 2016, when Emmanuel Macron announced that he was standing for President in 2017, he declared that one of his main policy ambitions was to reform the French pension system, turning it into a “universal scheme” in which every contribution would give rise to the same pension entitlement, regardless of whether one worked in the private or public sector or was self-employed. The simple message was that “1 euro of contribution would give the same entitlement to every pensioner”. Nothing was said at the time about raising the retirement age or increasing contributions or the dire and converging forecasts about future deficits, but it is worth noting that the French pension system as a whole absorbs more than 14% of GDP, quite a lot more than in other comparable countries. Much of it comes out of the state budget.

In contrast to the proposed reforms put forward by Alain Juppé’s government in 1995, for which there was hardly any prior consultation with those most directly concerned, there is no doubt that this time the government has fallen over itself to consult as many parties as possible and public debate has been vigorous and encouraged. However, as these consultations have proceeded, under the guidance of the avuncular Pensions Minister, Jean-Paul Delevoye, what looked like a simple solution has turned out to be a lot more complicated and the attempt to merge 42 individual pension schemes into one has hit many obstacles. For a start, to whom should the reformed system apply? To those who are 5, 10 or 15 years from retirement? Or only to those entering the workforce after the reform is adopted, a situation that would be tantamount to no reform at all for the next 40 years or so? What about the pension schemes that have managed themselves quite happily for many years, whose demographic characteristics are favourable and who are likely, under the proposed reform, to lose control over the reserves thy have built up? Is it fair that metro and bus drivers in Paris should be able to retire almost ten years earlier than their colleagues in other large French cities? Is it true that their working conditions are so much worse than those of nurses and doctors, whose jobs can be considered just as demanding and essential for society but who have no particular pension privileges? And on top of the proposals for a systemic reform, other more short-term but constantly recurring questions have also been raised: should the retirement age be raised for all, contributions increased, or existing pension entitlements reduced?  In the face of the number and complexity of such issues and the very different possible outcomes, the government had been criticised for not making its intentions clear, and by the more suspicious in nature (a large majority of French citizens!) for having a hidden agenda! But when all is said and done, the point has now been reached at which it is clear that the crux of the current reform effort is the reshaping of pensions in the public sector and particularly in big public transport companies like the SNCF and the Paris based RATP. And once again, the majority of unions in these and other public sectors have made it clear that they are prepared to bring the country to a standstill to stop the reform. Listening to a union representative on the radio this morning describing what he characterised as appalling working conditions in the Paris metro, I was left wondering why he and so many of his colleagues had not already left their jobs to look for something more congenial. But rightly or wrongly, their determination seems as strong as ever. In this respect at least, nothing has changed since 1995.

And in this conflict, as in so many others between the government and the unions, it is the evolving state of public opinion that will ultimately determine the outcome. For the moment, the attitudes of men and women in the street are inconsistent and contradictory. Some polls indicate that a majority is in favour of a straightforward, one-size-fits-all pension system, but other polls have found that many also have sympathy with those who are presented as, or loudly proclaim themselves as, losers in the process of simplification.  Now that the strike has been called and is likely to be massively observed, any objective assessment of the “facts”, difficult at the best of times, will take second place to a battle of soundbites and images against the background of all too familiar scenes of demonstrations and paralysis. In 1995, one of the reasons the strikers won the day was that Chirac was perceived, correctly as it turned out, as a half-hearted reformer. Macron is of a very different mettle. It is too early to tell whether Michel Rocard’s prediction will once again turn out to be true or whether Emmanuel Macron is the President who will at last break the curse of fundamental structural reform in France and succeed where many others have failed.

Does France want a federal Europe ?

In the U.K referendum of 2016, the case for Brexit was essentially about “taking back control”. Many years before, a London taxi driver had explained to me, repeating the mantra of Margaret Thatcher at the time, that “Europe” was fine but that a “federal Europe” was out of the question.  It seems therefore worthwhile exploring the extent to which the European project in general is indeed federal and whether France in particular is keen on a federal Europe, a concept that the UK has always rejected, even before the fateful referendum of June 2016.

The influence that France has always sought to exert over the rest of Europe has strong historical roots. Only going back as far as Napoleon Bonaparte, his German, Italian, Austrian, and Russian campaigns of the early 1800s were intended to produce a federation of Europe, with members of his own family in charge of its component parts. Carl von Clausewitz, the Prussian general who theorised the philosophy of war in his major work “On War”, was so influenced in his outlook by Napoleon’s campaigns, that he encapsulated their essence in famous phrases like, “War is therefore the use of force to impose one’s will on an adversary” (“Der Krieg ist also ein Akt der Gewalt, um den Gegner zur Erfüllung unseres Willens zu zwingen”) and “War is simply the pursuit of political ends with other means” (“Der Krieg ist eine bloße Fortsetzung der Politik mit anderen Mitteln”). It is an irony of history that in the 20th century, Germany itself, under the Nazis, would also set out to put these ideas into practice.

The European Union, as it has now become, was designed precisely to banish war forever as a means by which European countries could pursue political ends. But the gradual process of European construction has not put an end to France’s political ambitions in Europe. Far from it. For its part, Germany, sometimes characterised as an economic giant but a political pygmy, is still living with the political and psychological consequences of its recent history and subsequent partition and has been reluctant to define and project any European ambition. France has had no such qualms. But it is also striking to observe that it has always taken grave exception to any post-war integrationist agenda of which it disapproved, starting as early as 1954, when its Parliament torpedoed the European Defence Community. And only a few years after the successful establishment of The European Economic Community by The Treaty of Rome, built around French agriculture and German industry, it was General de Gaulle who simply refused to attend EU ministerial meetings for six months, for fear of being outvoted, before accepting “the Luxembourg compromise” in 1966, which effectively gives member states a veto over any decision if its “vital national interests” are at stake. It was another French President, Valery Giscard d’Estaing, who succeeded in upgrading the European Council to a highly effective tool of intergovernmental cooperation to counter integrationist initiatives of the supranational Commission. The European Council, that was enshrined in the EU’s institutional machinery by the Lisbon treaty of 2007, is now the key body that sets its political agenda and strategic direction.  In short, as far as France is concerned, the European project, it seems, can only advance on French terms and as a result of intergovernmental agreement. Emmanuel Macron’s current attempt to assume the political and intellectual leadership of the EU  (see: “The Economist” - November 9th ) at a time when Germany is temporarily weakened by the long drawn-out end of the Merkel era and the UK is on its way out, is simply the latest example of a very long-standing French ambition to forge Europe and its current incarnation, the EU, in its own image.

But is that image one of a federal Europe? There are almost as many definitions of federal as there are federal countries. The most obvious example is that of the United States, but Brazil, Mexico as well as Germany and many others are also federal in structure with different types of relationship between central government on one hand and regional, state or provincial governments on the other. When people use the word “federal” in the European context, they usually mean a gradual process of greater integration and sovereignty pooling but the phrase “an ever closer union….”, first enshrined in the preamble of the Treaty of Rome, is sufficiently lofty sounding but at the same time sufficiently non-binding to accommodate different visions of integration and an open-ended timetable. And as far as France is concerned, as I have suggested above, further integration can only come in small steps and in slow motion  - and, to the greatest extent possible, on French terms.

The major integrationist steps in the EU so far have been mainly economic, with common policies on agriculture, trade and competition, among others, culminating in a (partial) monetary union and open borders between some countries of the Union, but not all. These policies have benefitted all member countries of the EU in terms of GDP growth and per capita income. And in spite of its occasional grumblings about “unfair competition”, particularly from the newer member states, France is no exception. And yet all this is still very much work in progress - economic and monetary union is far from complete and the current negotiations about rounding it out with a banking union are difficult and will be long drawn-out. The Schengen system has undoubtedly made life easier for many EU citizens, particularly in France, that shares a land border with six other European countries, five of them members of the EU. But in this sensitive area of national sovereignty, the Union has repeatedly failed to define an effective immigration policy and its external borders are, as everywhere, difficult to police. It is also worthwhile noting that the U.K, years before the term Brexit was even coined, opted out of both the Maastricht Treaty and the Schengen agreement. Why worry, one might ask, about “taking back control” when the country has already skilfully managed to sidestep the EU’s most decisive moves towards greater integration?

More significantly though, France is caught in a dilemma between its stated desire to pursue European construction and its profound nature as a centralised nation state. Its history, at least since the reign of Louis XIV, has been one of bringing its outlying regions like Brittany, Corsica, French Catalonia, and the Savoy under the control of a centralised state. After the Revolution, that centralised state became a centralised Republic, with its much-vaunted values of liberty, equality and fraternity. And indeed, in pursuit of these “republican values” centralisation is all pervasive in France. Prefects appointed by the central government ensure that legislation voted by the Parliament in Paris is applied uniformly in every corner of France, including its overseas territories. The National Education Ministry administers a monolithic and supposedly egalitarian public education system. A huge body of administrative law has been created and conflicts with the administration are handled by administrative courts. The powers that municipal mayors and local authorities do enjoy over local or regional matters can quickly be overridden by national laws and regulations. In one recent and telling example, the mayor of a small provincial town who had decided to ban crop spraying within 150 meters of residential areas was overruled by an administrative court enforcing a decree issued by the Ministry of Agriculture in Paris. Even local powers of taxation can be removed at the stroke of an imperious pen, as the recent government decision to phase out the locally important “taxe d’habitation” shows – a move that has left many local authorities in dire financial straits.

There are many other examples of central government’s heavy hand in French society. The inevitable consequence of course is that whenever anything goes wrong, anywhere, from street lighting in a blighted suburb to the closure of a factory in a small town, the “state” is called upon by all concerned to sort it out. A Financial Times correspondent in France recently interviewed Priscillia Ludosky (FT Weekend November 1^st) one of the leading lights in the gilets jaunes movement. She rehearsed once again the idea that many people in France feel they are trapped in “left-behind communities” and that it was this feeling that sparked the multiple demonstrations that started last November and continue, with varying degrees of intensity, to this day. And yet, the specific issues she pinpointed like inadequate child care facilities, lack of local transport and potholes in streets are not the responsibility of central government. They should normally and could realistically be solved by local authorities.

As I have suggested in this blog before  (“The state of the state” – April 2018) the French centralised state would therefore have a lot to gain, in terms of efficiency and acceptability, by embracing a more federalist approach and devolving real power, including inalienable power to raise taxes, to the regional or local level and concentrating on matters of national sovereignty like defence and security, justice and immigration for which, even in a federal system, central government is responsible. But for this to happen, France would have to break with its long-standing centralising traditions. And as far as greater economic and financial integration and steps towards a European security and defence policy are concerned, examples of where future European cooperation may be focussed, the central state would have to pool sensitive parts of its national sovereignty with other nation states. It is hard to see either of these two developments happening any time soon!

If there were still time for the U.K to wake up from its Brexit nightmare and take a more dispassionate look at the progress of European construction, it would find that the much-feared bogeyman of a “federal Europe” is nowhere on the near horizon and that “ever closer union” will continue to be a very slow and very tortuous process!

Thomas Piketty's second tome

Thomas Piketty was on the radio yesterday lunchtime, interviewed by a good economic and business journalist, Hedwige Chevrillon, about his new book, “Capital et Ideologie”, published a month ago in French.  As the translators into English and other languages beaver away over the 1232 pages of text, charts and graphs, the least of their worries will be the straightforward title!   

After the considerable interest in his last work  “Capitalism in the 21^st century”, not only in France but throughout the world – so far 2.5 million copies have been sold in over 40 languages,  (“only a small portion in English”, Piketty revealed)  - this second book will undoubtedly also be widely read and commented on.

Starting the interview on a provocative note, the journalist asked Piketty if he considered himself a latter day Karl Marx,  “Certainly not”, Piketty answered, “Karl Marx did not have the benefit, as I did, of 150 years of economic history from which to draw his conclusions and he was also unaware of the abject failure of Soviet style communism”. He then went on to give 20^th century western style capitalism credit for having raised standards of living and reduced inequalities through progressive taxation, even in the United States,  but blamed it for reducing taxes and preferring ownership and rent seeking to redistribution, starting with the “Reagan revolution” of the 1980s, making it clear that in his view, the policy stances of both Roosevelt and Reagan were based on ideological rather than economic choices. Interestingly, he admitted that after being liberally inclined when studying economics in the 1980s, he had changed his economic philosophy on the evidence of the collapse of the Soviet Union but also what he sees as the objective failure of Reagan’s economic policies, and those that followed his lead, to generate growth and investment.  The publicly stated justification at the time for drastically lowering taxes was the assertion that it would lead to greater investment, and therefore growth that would benefit the whole of society. This turned out, according to Piketty, to be false: the evidence he has gathered shows that since the 1990s, in the major developed countries, the rich have grown richer, growth rates of the post-war years have stalled and inequalities have worsened. He admitted sympathy for the main planks of the democratic platform for the 2020 election and scorned those who claim, once again on the basis of ideological convictions, that they are tantamount to socialism or communism by the back door.

Continuing the theme of his first book, Piketty also stated that progressive taxes should not only be levied on income but also on capital accumulated during a lifetime. A young entrepreneur, however brilliant his idea, however beneficial it may be to society and however big his ensuing business may become, has no right to be immune from the progressive taxation of income and accumulated wealth, both during his lifetime and when he dies. Turning from the US and Europe to Asia, he pointed to the paradox that inherited wealth is taxed at 55% in Japan, that runs a western style capitalist economy, whereas in China, ruled by a purportedly egalitarian Communist party, it is taxed at 0%.

All this of course is of more than just passing interest in France, given the continuing debate about the wealth tax that Emmanuel Macron controversially abolished soon after taking power in 2017. His publicly stated economic argument for doing so was very similar to that of Ronald Reagan in the 1980s: wealthy people will invest the money they haven’t been obliged to pay in taxes and therefore generate growth.  A recently released report produced by a panel of French economists, who were given the task of evaluating the impact of the measure, concluded that it is still too early to tell. It’s only tangible impact that they could point to for the time being is a considerable reduction in the number of tax exiles from France in 2017 compared to 2014. And while it is true that the trend growth of the French economy is a little higher than that of comparable countries, in particular Germany, many commentators put this down to the boost to consumer demand after the injection of more than €11 billion into the economy as a result of the gilets jaunes protests last autumn.

Will Macron’s more structural measures, like those in favour of vocational training or reducing unemployment benefits, add momentum to economic and wage growth in one or two years time? Again, it is too early to tell, but a lot of Macron’s credibility and therefore his chances of being re-elected in 2022, will be riding on their results.

Macron has also gone on record as saying that one of the greatest factors of inequality in France today is not having a job. This ties in with another of Piketty’s findings, that education and training are fundamental to reducing inequality and that the state should therefore encourage massive investment in education at all levels.

One imagines, although he didn’t say so, that Piketty would therefore give Macron credit for the measures that his government has taken to boost apprenticeships and vocational training, as well as focusing more resources on primary education, but that he would not be so complimentary about the abolition of the wealth tax! Nor can he be expected to have great sympathy for Macron’s championing of France as the “start-up nation” together with his frequently repeated encouragement to young entrepreneurs “to become millionaires”.

Towards the end, the interview degenerated into hubbub and confusion as both interviewer and interviewee spoke across each other and at cross purposes - too many questions to ask and too much information to impart. Radio interviews often, disappointingly, end this way for lack of time.

To find out more, there is no alternative therefore but to plough through the 1232 pages of Piketty’s book!