French politics: Le fail

December 9, 2014 Updated: April 23, 2016

Recent news of Walt Disney’s €1 billion bailout of Disneyland Paris, aimed at keeping the kingdom of magic alive, raises many questions about France’s persistent financial woes. After all, if even the magical land of Mickey Mouse, which has barely been able to turn a profit throughout its 22 year existence, is unable to stand up on its own to feet, what is to be said about another magic utopia, the mystical land of French capitalism?

Since socialist President Hollande took office two and a half years ago, France has been plagued by a lagging economy, a loss of competiveness and rocketing unemployment, inspiring the Economist to label the country Europe’s “time bomb”. Indeed, France’s stubborn unemployment rate rose quarter after quarter, to 10.4% in the third quarter this year, with a record 3.4 million people out of a job, leading outsiders to indulge in typical French bashing, pointing fingers at French laziness and using as “Exhibit 1” the 35-hour work week – which although makes for a great sound bite, is rarely rooted in reality since the average French worker works more than his German or Norwegian counterparts.

Indeed, the answer lies not in laziness, but rather in France’s byzantine labor laws, its high tax rates and the hefty social charges placed on wages, the highest in the euro-zone. These conditions led to an unusual twist on the French favorite pastime of worker demonstrations or manifestations, when thousands of French bosses took to the streets last week to protest government regulations and taxes that are “straitjacketing companies, discouraging hiring and choking the economy”.

Despite record unemployment, owners of small and medium enterprises claim that the French labor code discourages them from taking on new workers, as the conditions for entrepreneurs and business remain unattractive. Unlike its European counterparts, Germany, Italy and Britain, France has the smallest amount of medium enterprises, a key engine of job growth. The establishment of new companies is as rare an occurrence as positive news about France in the media.

Inside the magic land of…taxes and regulations

The overly rigid labor law regulation can be blamed for the sinking EuroDisney Park. While its US equivalents have recorded a 10% growth in revenues, Disneyland Paris is laden with 1.75 billion euros in debt, 15 times it gross average earnings. One of the key problems is that Walt Disney significantly miscalculated the cost of worker employment in France and predicted labor costs at a conservative 13% of revenues. In reality, labor costs rose to 40% of revenue as soon as 1993 and are largely to blame for the Kingdom’s lack of profit making.

In spite of Hollande’s promises and French entrepreneurs running amok on the streets of Paris and Toulouse, the French government has failed to launch any meaningful pro-business reforms, as demanded by pressure groups. Hollande is set to announce fresh measures this week to spur job creation and investment, in part as a response to increasing demands by Angela Merkel to conform to the EU’s budget deficit ceiling. However, it seems hardly surprising that the disgruntled French are suspicious of such promises. After all, despite Hollande’s admittance that France lacks competitiveness and guarantees to reduce social charges on enterprises and create a more flexible labor market, his actions have left much to be desired for business owners. A 75% top income tax, along with increased taxes on enterprises, wealth and dividends, as well his lack of focus on pro-business reform during his election, leave the country significantly behind other European governments who have used the crisis to pass structural reforms. Without the necessary changes, France may soon find itself ailing behind Spain and Italy as investors turn the other way.

Will Sarko save the day?

While the unpopularity of President Hollande is undeniable (his approval rating has hit a new low of 12%), will former President Nicolas Sarkozy succeed in pulling the country out of its rut? Having recently won by a whisker the Presidency of the UMP, Sarkozy attributed his return to the French political scene to his “duty to help France and the French people at this difficult time”. In spite of his carefully worded musings not to “abandon” the French people, the current lack of trust toward politicians and the traditional establishment as a whole means that Sarkozy will be facing an uphill battle in his presidential bid, as fellow UMP member and Bordeaux mayor Alain Juppé and Marine Le Pen, the leader of the far-right National Front will present serious challenges to his return. Adding to Sarko’s woes, he is embroiled in multiple court cases, which range from corruption charges to misuse of funds. His political future might very well be decided in a court of law, well before the 2017 Presidential elections.

During his tenure in the Élysée palace, Sarkozy pursued a reformist agenda, which solidified his staunchly pro-business reputation. But were he to run again, Sarkozy will likely attempt to capitalise on Le Pen’s far right allure, meaning he will take a stronger stance against EU policies, seen as entrenching on France’s sovereignty. By doing so, he would be putting aside his reputation of a Europhile as well as his so-called duty to help the country. A last ditch dash for power would not only undermine his previous efforts to build a strong EU, but will also damage France as a key player in the European project for years to come.

In order to fight for a strong France inside a united Europe, the 2017 presidential candidates should monopolise not on anti-immigration and anti-EU rhetoric, but rather give the people what they want: economic growth, jobs, rebuild trust in the political system and provide incentives for investment.

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