The real scandal in France

(Hint: It's not François Hollande's predilections)

French President Francois Hollande. (Alexander Widding/Polaris)

Here’s a game no one wants to play at home: Pretend to be François Hollande.

The French president is beset with a host of crippling problems, ranging from the personal to the political to the economic. Taken together, his challenges present a significant threat to France, and beyond.

Hollande’s messy private life has been generating plenty of salacious interest. While unmarried, the president installed his live-in partner, Valérie Trierweiler, as the country’s “first lady,” with an office and staff at the Elysée Palace. Now, however, revelations of his midnight visits with Julie Gayet, a French actress, appear to have severed his official relationship with Trierweiler, who wound up in the hospital from the stress.

Of course, infidelity need not be fatal to a politician’s career, especially in France. But the fallout from the affair has made Hollande look weak and foolish. (He was photographed riding to his trysts on the back of a scooter, wearing an enormous helmet and with little security in evidence.) All this has contributed to a free fall in his political popularity. Current opinion polls put his support at 15 to 20 per cent, the lowest recorded for a president since the founding of France’s Fifth Republic in 1958.

And yet, Hollande’s most pressing problems aren’t on the front pages of the tabloids. It’s the business section that’s giving him the biggest headaches.

Across most of Europe, the economic news has been slowly but steadily improving. The five sick men of Europe—Portugal, Italy, Ireland, Greece and Spain—are getting back on their feet, as government austerity, tax reform and measures to improve labour-market flexibility start to pay off. In December, for example, Ireland became the first of the five to emerge from the continent’s massive bank bailout program.

Unfortunately, as the sick men heal themselves, France appears to be heading in the opposite direction, due to a bloated public sector, high taxes and the famously rigid French labour market. Unemployment is now at a 16-year high, government spending accounts for an unsustainable 57 per cent of GDP, and last month’s Purchasing Managers Index (PMI) survey, a key indicator of private sector expectations, suggests France may be entering yet another recession—its fourth in six years. According to Chris Williamson, chief economist at Markit, which conducts the PMI survey, “France looks increasingly like the new ‘sick man of Europe.’ ”

One example of many reveals how the French combination of union intransigence and government regulation frustrates efforts at economic progress or renewal: A smartphone app that would allow Parisians to quickly order a private cab was recently saddled with a government decree imposing a 15-minute wait time on orders, so as to give unionized, roaming cabbies a chance to snap up the fare. Then, earlier this month, the union rioted to press demands that the government lengthen the mandated delay to half an hour. Business in France is increasingly at odds with the expectations of efficiency and customer service in the rest of the modern, global economy.

Even more troubling, young entrepreneurial talent is escaping to London, a short train ride away, where an estimated 400,000 French émigrés now live and work. A recent British academic study of these highly skilled migrants concludes that “most . . . have no plan to return to work in France.”

The marked divergence in economic activity and confidence between France and the rest of Europe has forced Hollande to take action. At the beginning of January, just as the details of his sex life were getting a full airing, the president announced a multi-year, $45-billion tax concession for employers. He also promised to cut public spending, saying the state has become “too heavy, too slow, too costly.”

All this sounds like the medicine France needs. But can Hollande really deliver on such reforms? The socialist leader won the presidency in 2012 with a platform of higher taxes for the rich—including a 75 per cent impost on high earners—and a reversal in earlier austerity measures. Now he’s trying to remake himself into a fiscal conservative. It seems a big ask, particularly given his slumping popularity, lack of political capital and that famous French resistance to economic change. A rapid turnaround seems no more likely than a reconciliation with Trierweiler.

It bears mention, of course, that France remains a significant First World power with a large and diversified economy. And its crucial alliance with Germany is still intact. Nevertheless, there exists a real risk that continued economic malaise and/or the inevitable street protests in reaction to any reform efforts could lead to a dramatic collapse in Europe’s second-largest economy; and such an event would wipe out all the hard-won progress to date by the continent’s other weak nations.

The fall of France could easily precipitate another international financial calamity. And no one wants that.

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