This is good for EU context, as well as being a comparator for UK policy:
France is on a road to nowhere without reforms
With strikes and red tape a part of everyday life in France, can the eurozone's second largest economy haul itself out of stagnation?
3:40PM GMT 13 Feb 2016
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It’s almost lunchtime in Canary Wharf, and Julien shivers in the shadows of the giant buildings. A French banker who has worked in London for more than seven years, he’s never quite got used to the cold.
Emmanuel Macron, France’s rock star economy minister, famously said France’s controversial 75pc top tax rate would turn France into “Cuba without the sun”. Britain is certainly not Cuba, but it also doesn’t have the sun.
But Julien, like thousands of other French nationals who have moved to London and other parts of the UK, is undeterred by the winter weather.
It’s been more than three years since David Cameron, the Prime Minister, said he’d roll out the red carpet for high-earners looking to flee France’s high tax regime.
For Julien, who first came to the UK a decade ago to study and now works for a top investment bank, France has never been a place of opportunity. He left for the second time in 2008 and never looked back.
“I used to think London was the city lacking dynamism, but there are a lot more opportunities here,” he says. “There is just a more open-minded atmosphere. It’s a much more global city.”
Many of his friends have also moved abroad. Those who stayed and “accepted their fate” in France complain about inefficiencies and bureaucracy that are holding the economy back.
“France has this paralysed mindset, it’s conservative, narrow minded. People still have a very socialist attitude towards businesses. For them, there is no two-way relationship. Bosses and managers are almost enemies. It’s like everything has to involve a struggle.”
Plainclothes police officers check chauffeurs at the Paris' Gare de Lyon railway station. "Chauffeurs" - like those who drive for Uber, claim they are victims of discrimination by the government, while taxi drivers complain about unfair competition. Photo: AP
Even Uber, which introduced the free market to taxis, has experienced France’s meddling state at first hand.
Threatened by the competition, France’s highly regulated taxi industry lobbied the government to impose stricter controls on companies such as Uber. It got its way.
The California-based company is fighting back in the only way France knows – by striking. Uber is suspending its service in France for four hours on Tuesday in a protest against the government’s decision. After all, if you can’t beat ’em, join ’em.
In some cases, things have got ugly.
Security staff help a shirtless Xavier Broseta, Air France human resources manager, to safety after angry workers ripped off his clothes
Last October, two Air France executives had their shirts ripped off their backs by furious workers protesting against job cuts at the airline.
In another example, Renault, France’s second-biggest car manufacturer, put itself on a collision course with the government last year after the state beefed up its stake in the company to secure double voting rights under French law.
It was thought the government was trying to ensure that jobs at Renault-Nissan were kept in the country. Some even believed France would try to move Nissan’s factory in Sunderland across the Channel.
While the dispute was eventually resolved, it is only the tip of the iceberg of France’s problems.
Weak growth, near-record unemployment and mountains of red tape threaten to leave France in permanent stagnation.
It wasn’t always this way. Before the 2008 financial crisis, France’s unemployment rate stood at 7.1pc. This was the lowest since the 1980s and even below Germany’s rate of 7.8pc.
Fast forward seven years and the tables have turned. In Germany, the jobless rate has dropped to 4.5pc, while France’s rate remains stubbornly high, at 10.2pc, according to Eurostat.
The International Monetary Fund (IMF) recently slashed its forecast for French growth over the next two years.
While France continued to cling to its social safety net and bloated public sector, Germany reaped the benefits of its radical Hartz reforms between 2003 and 2005.
France's labour laws make it extremely difficult to fire permanent staff, so companies have responded by only offering temporary contracts, many of which last less than a month.
Christine Lagarde, the IMF’s managing director and France’s former finance minister, warned last year of a “new mediocre” for global growth. France is quickly becoming the poster child.
The eurozone’s second-largest economy has consistently been in Brussels’ bad books for spending more than it earns in taxes and is unlikely to reduce its deficit below the 3pc limit this year.
France has struggled to shake off its reputation as a fan of red tape and bureaucracy. According to the World Bank’s “doing business index”, it’s easier to start a new company in Kazakhstan and Ukraine than in France.
All these factors led Francois Hollande, the French president, to declare a “state of economic emergency” last month.
French Economy Minister Emmanuel Macron (L) comes face to face with companion robot BUDDY during a visit to French tech startups at CES 2016 in Las Vegas Photo: AFP
Enter Macron. The former Rothschild banker is trying to guide France back towards competitiveness. While he found himself in the middle of the Renault-Nissan spat with the government last year, Macron has most recently been championing entrepreneurship at the Consumer Electronics Show (CES) in Las Vegas. “We created 1,500 start-ups last year,” he declared.
This pro-business strategy is backed by Hollande, who announced extra measures last month to try to bring down France’s jobless rate. This includes the creation of 500,000 training schemes, more subsidies for small business and a programme to boost apprenticeships.
This, combined with tax cuts for business worth €40bn (£31bn) over three years, is designed to give the economy a shot in the arm.
Pierre Gattaz, president of MEDEF, France’s main pro-business organisation, describes the plan as a “step in the right direction”.
“We’ve seen a change, because [Hollande’s] speech was pro-entrepreneurs and pro-business. So the direction is there. We need business, we need agile companies. The world is moving fast so we need to rehabilitate the jobs market.”
"There’s always something policymakers have to row back on or tweak."
Jessica Hinds, Capital Economics
Gattaz followed Macron to Las Vegas last month, and insists that the government’s drive to create more entrepreneurs will be a success.
But success also requires reform. Policymakers are now ready to take on one of France’s untouchable political totems – the 35-hour working week.
The policy was first introduced by Lionel Jospin’s government in 2000, but policymakers want to relax the law so that companies can decide on an individual basis the maximum number of working hours.
Gattaz believes the government can pass reforms while preserving the 35-hour week for most companies. “Sometimes, when it comes to the 35-hour week, people say around the world that French people don’t like to work any more – this is the kind of French bashing we expect, but Hollande’s speech, and the advice we hear from the prime minister [Manuel Valls] and of Macron has been in the right direction.”
For others, France’s problems are much deeper. Jessica Hinds, at Capital Economics, says “steps in the right direction” and rhetoric are not the same as executing the policies.
“The French have started to do the right things, but the reforms have not been ambitious enough given the scale of problems facing the French economy.
"There’s always something policymakers have to row back on or tweak. Reforms to employment tribunals were deemed unconstitutional. There’s just no sense that the government is really going for reforms.
“This means if you’re a businessman or factory owner and employ people in France, despite the fact that the workforce is well educated with high productivity, if you’re going to be saddled with regulation and unable to fire people when things go wrong you’re never going to take the plunge and that really does hold the economy back.”
"The French are always complaining – but I can tell you that the business community understands and appreciates the reforms."
Pierre Gattaz
Gattaz remains optimistic. “I think we have to create at least one million jobs within five years and continue to work on the competitiveness of the French economy.
"Lower taxes, more flexible hiring and reforms of labour laws will create confidence for investors. And when confidence arrives, so will success for the French economy.”
“The French are always complaining – but I can tell you that the business community understands and appreciates the reforms. “You have to be coherent and tenacious, that’s what Hollande, Valls and Macron are trying to do.”
For Julien, while ministers like Macron are a “breath of fresh air”, there are not enough radical thinkers in government to make a difference.
“French people are looking for a messiah that will guide them and enlighten them,” he says. “But there is such a mistrust of the political class that at the end of the day they never find this messiah. So they always end up disappointed, and things always seem to end up even more hopeless than they used to be.”
