France and the Fate of the European Welfare State
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Version 0 of 1. LONDON — During a recent dinner, the Nobel laureate economist Christopher Pissarides proposed in jest that the euro area stamp half its bank notes with the word “south” and run two parallel currencies: one for the prudent northern half of the bloc, the other for the Latin south. “France,” he asserted, “belongs to the south.” Mr. Pissarides, a professor at the London School of Economics, was not referring to the fact that the French president, François Hollande, had just been caught having a rather Latin love affair with an actress. Rather, he was talking about unit labor costs in France rising faster than those in Greece; a ratio of debt to gross domestic product above Spain’s; and youth unemployment levels in some of France’s ethnically mixed suburbs looking almost Italian. One question focusing European minds in 2014 is this: Will France arrest its slide into the Continent’s second division? The euro crisis has turned France into something of a test case for the survival of the European welfare state, which despite its various incarnations is a pillar of postwar European identity. If France, with its proud history and feisty unions, can manage to make its social model sustainable, any of its neighbors can. Mr. Hollande’s finance minister, Pierre Moscovici, insists that the president is aware of the urgency. “At the end of last year, he realized he had a clear choice,” Mr. Moscovici recalled in a recent interview. “Either we continue as before or we make the historic changes to bring our social system into the 21st century.” Until recently, France often appeared to be moving backward. Mr. Hollande lowered the minimum retirement age to 60. Germany and Greece have raised it to 67. But the tone in Paris has changed. Last month, the president announced a “responsibility pact,” promising to reduce labor costs by 30 billion euros, or $41 billion. In return, companies have to commit to step up hiring. “The most ambitious labor market reform in 40 years,” as Mr. Moscovici calls it, comes on top of an earlier promise to cut public spending by €50 billion and reduce the public deficit to 3 percent of gross domestic product by 2015. Business has started to listen. “There is a new determination,” said Virginie Morgon, chief operating officer at Eurazeo, a private equity company. Even Nicholas Spiro, managing director of Spiro Sovereign Strategy and fond of calling France “the sick man of Europe,” said Mr. Hollande “is talking the talk in a rather unusual manner for a Socialist government.” Might Mr. Hollande yet turn into his country’s Gerhard Schröder, the former Social Democratic chancellor credited with the overhauls that laid the foundation for Germany’s economic strength this past decade? That was the message to international business leaders who were invited to Mr. Hollande’s residence on Monday and urged to invest. Foreign start-ups will be offered a tax break, the president told them, and corporate taxes stabilized. Most observers agree: It will take a Socialist to change the French welfare state. But Mr. Schröder reformed during a boom. Mr. Hollande is dealing with the fallout from the Great Recession. “Structural reforms,” Mr. Spiro said, “are that much harder when the French economy is on its knees.” Cutting costs for companies is not enough, he said. Raising the retirement age and challenging the notion of highly protected permanent work contracts would go some way toward that sweet spot of Scandinavian-style flexibility-cum-solidarity France claims it wants to emulate. Making it easier to fire people? “Some people dream of France becoming an Anglo-Saxon country,” Mr. Moscovici said. “That’s not what we are, and that’s not what we want to be.” Ms. Morgon, the private equity executive, had a different take: “We have to change the system precisely so we can preserve it and stay true to what we are.” France has a lot going for it, not least birthrates near replacement level, impressive infrastructure, good engineers, and social mobility that while declining is still higher than in the United States or Britain. Joking aside, it is also the only country in Europe that straddles the butter-eating, beer-drinking north and the olive-oil-guzzling, wine-sipping south of the Continent. When Mr. Hollande was photographed riding a scooter to the apartment of the actress Julie Gayet last month, his helmet’s visor was apparently down. His “sensible” shoes gave him away. As one French official put it: “Going forward, we want to focus less on the actress and more on the sensible shoes.” |