TCS Daily


French Arithmetic

By Jean-Christophe Mounicq - May 9, 2003 12:00 AM

In 2002, at the annual meeting of Vivendi Universal's stockholders, then Chairman Jean-Marie Messier tried to calm anxiety about the future of the company by saying that "in fact, the situation of Vivendi is very good." A few days later, he announced the worst loss ever experienced by any industrial company in France.

To understand such a gap between words and realities non-French readers must know that Messier is an "enarque", i.e. a former student of what is considered to be France's most prestigious school, the Ecole Nationale d'Administration (ENA).

Every major French politician has passed through ENA: Jacques Chirac, the president; Dominique de Villepin, the foreign minister; Alain Juppé, the president of Chirac's center-right party; and François Hollande, the president of the Socialist Party. And even though economics is not really taught at ENA, many French businessmen, such as the current chairman of the French Business Union, Ernest-Antoine Seillières, also are graduates of this school.

This is part of France's pretension. If you are the best at doing one thing - learning by heart the rules of administrative law or speaking in public on any subject, even the ones you do not know - you should be the best anywhere. This is also the result of the French preference for theories and words over facts and figures.

Enarques disdain arithmetic. Controlling all power, from politics to business to media, French technocrats have persuaded the rest of the population that counting is useless. For every private problem there is always a public solution. And the government does not need to count. What if public spending exceeds public revenues? Simple: raise taxes, increase debts and wait for growth!

When the media business was going well, Messier made a lot of acquisitions and took on a lot of debts. The so-called "little genius" forgot that markets fluctuate. When the business went down, he could neither pay back his debts nor levy money from stockholders. Vivendi Universal was on the brink of bankruptcy. Messier was forced out. Some blamed the market, but it was inappropriate corporate management that was to blame.

French politicians may now find themselves in the same kind of situation with "Universal France."

Benefiting from the world economic growth of the late 1990s, and with the help of the depreciation, France took on a huge amount of additional public spending and debt. The former socialist prime minister, Lionel Jospin, an enarque, spent €100 billion to lower the legal work week to 35 hours. The rising number of public servants adds another €15 billion every year. Not to mention additional billions in health care, the "Christmas bonus," international loans, etc.

Now that growth is more elusive and the euro is inflating, France's economy is in trouble. In fact, it is probably in the worst situation of any country in Europe. According to the European Commission, France will have the highest public deficit of any eurozone country - at least 3.7 percent of its gross national product. These estimates are optimistic, as the expected growth rate probably will not be reached. The welfare system is sinking. The annual deficit for the medical system may reach €15 billion. The response has been to issue a list of 650 drugs that will be reimbursed at a lower rate, a measure that will save...€150 million a year. The deficits of public companies should reach €20 billion. This public spending is not taken into account by the Maastricht criteria governing deficits of eurozone countries. The real public deficit will be somewhere between 5 and 5.5 percent.

The current prime minister does not dare to attempt any major reforms for fear of a general strike. But even a small reform of the retirement system will nevertheless bring all the public servants into the streets. Jean-Pierre Raffarin is presiding over the decline. Bad news is followed by still more bad news. Unemployment is rising sharply: 25,000 additional unemployed in March. The fourth quarter showed negative growth: - 0.1 percent instead of the expected + 0.2 percent. The decline in the new car sales is increasing (-13 percent for April, -9 percent for the first quarter).

French consumers have no champion. French businessmen have reduced their investment for the first time since 1997 and their morale is dropping. Only public spending has increased (+5 percent) to reach an all-time high of 53.6 percent of GNP for 2002. French businessmen fear a boycott of French products, but they do not fear supporting every position of Jacques Chirac.

For a few weeks, French politicians managed to convince their citizenry that theirs was a major country able to lead world opposition to the "hyper-power" across the Atlantic. A less lyrical time is now upon us, with financial realities knocking at the door. The French may regret having spokesmen who are "great" while the doers in their midst are so small.
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