Anthony Peters, SwissInvest Strategist
President Hollande is, by dint of his previous roles in the Partie Socialiste (PS), chief ideologist for the French centre left and he has subsequently been quite adamant in his defence of his own orthodoxy. Sceptics, myself included, have feared that France was due a severe reality check in terms of labour legislation.
There has always been much mirth across Europe about that Gallic holy cow (no horse meat here) of the 35 hour work week but as the global financial and economic crisis has bitten harder and deeper into France’s progressively less competitive manufacturing base, many had expected the man to crack. No way.
Wednesday’s 2012/Q4 unemployment numbers will have offered no respite for the embattled but unerringly stubborn President. Of course it can’t be denied that Hollande jumped on a runaway train when he won the Presidency and we are nearly through the first quarter of 2013 before having been presented with the statistics for the end of last year but it would be a brave man who would predict that the first quarter of the current year will show a reversal of the trend.
The recent record high in French unemployment was reached in 1998 at 10.8% but yesterday’s report of 10.6%, marginally higher than the consensus forecast, is not far off and, as said, there is no trend reversal in sight. Youth unemployment, the bane of the age, has risen from 24.0% to 25.2%. This is not what the Hollande administration had in mind when it won power last year. Leafing through the French economic metrics for the last months, the only item which seems to be consistently rising is that which measures wages.
Major doubters – I have one chum in Paris who consistently accuses me of not being negative enough – feel that the decline in manufacturing output is more likely to accelerate from here rather than slow and that the probability of France being able to attract new inward investment is next to nil. The recent spat between Maurice Taylor, CEO of tyre manufacturer Titan and the indomitable Arnaud Montebourg over French working practices was a case in point. Montebourg has a delightfully brusque manner when it comes to instructing foreign industrialists that they are wrong when they express the opinion that his country is not a good place to make things.
Opinions can never be wrong
Firstly, Monsieur Montebourg, an opinion can never be wrong. You might not agree with it but as it only an opinion, it can by definition not be branded as wrong. Secondly, perception is reality and if you want to sell your country as a viable manufacturing base, you don’t achieve that by accusing those with money to spend of being ignorant idiots.
Taylor was pretty damning of the workforce when he wrote “I assured the unions we wouldn’t cut wages but told them we were going to produce more. I said, “We expect workers to come in for seven hours a day. You’ll get paid for your lunch hour and break, but I’ve noticed that currently you work about three good hours in the day and the rest of the time you remind me of a beauty parlor with all your chit-chat and milling around.” Well, Spike got up and said, “You do not understand — that is the French way!” I proceeded to tell him that the French way, my friend, means you’re going to lose your job.”
In the event, of course, Titan did not take over the Goodyear plant and it was closed.
Somehow, don’t ask me how, France has again and again succeeded in confounding all critics and has valiantly hung on to its progressive social model. I recall the introduction of the 35 hour week which was put in place under the banner of individuals working less and sharing the work load around more equitably. Great idea. Then came that hours would be cut but wages wouldn’t. On the back of that, French workers worked just as hard and just as productively as their peers except that more of those hours were now either worked at more expensive overtime rates – not good for competitiveness – or they were taken in compensation as extra paid holidays – not good either.
So, if the work is shared around by a shorter working week, does that not make 10.2% unemployment a worse outcome than it appears at first? I am not an econometrician and really can’t come to a definitive conclusion on that matter but if perception is reality and if an opinion can by definition not be wrong, then my interpretation of the unemployment figures is that it has to be.
I shall stick by my original statement that 2013 is a year for politics and not one for economics but we cannot be far from someone waking up and deciding that being complacent about Europe simply because US consumers are leveraging up again is not a viable strategy.
Alas, no need to start selling yet but, to haul out an old chestnut, don’t miss the ball but dance close to the door.