ft.com/France remains in a state of magical thinking

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SHAFAQNA –  Should the rest of Europe once again accept that France is not keeping its word? The French government on Wednesday said its deficit would reach 4.4 per cent of gross domestic product this year, and that it would not reach the EU-designated target of 3 per cent until 2017. That is two years later than President François Hollande and his then finance minister Pierre Moscovici had promised as recently as last summer.

“We are not asking,” Manuel Valls, the prime minister, declared before the National Assembly earlier this month. “France makes its own decisions.” It is legally hazardous. He should perhaps reread the law. Since joining the euro Paris has shared its economic and monetary sovereignty. The Lisbon treaty, of which it is a signatory, states that economic polices are “a matter of common concern” that must be co-ordinated with the European Council. In almost the same breath, Mr Valls asked Germany to “shoulder its responsibilities”. If each country makes its own decisions, why did he expect Berlin to listen?

This mutual surveillance of budgetary policies has been strengthened since 2011. The European Commission now examines each country for economic imbalances – and in France’s case, identified problems concerning pensions, labour costs, taxation and regulated professions, among others. It was in return for assurances that these would be addressed that France was granted two years’ respite. Paris gave its word.

Countries that break the rules are expected to pay the price. The only way to escape fines is to secure the consent of other countries. This is unlikely to be forthcoming. The commission has been especially flexible towards France.

The law is not the only area in which Mr Hollande’s team has succumbed to magical thinking. It is also in denial about the state of the French economy. The government argues it is victim to a difficult economic cycle. It claims to be confronting “exceptional circumstances” of very weak growth combined with very low inflation. (Both figures are close to 0.5 per cent.) The downturn is indeed worse than expected, and it is also affecting Germany and Italy. But it is not without precedent.

But the root of France’s problem is structural. The country is uncompetitive in international markets. That is hardly surprising. Public expenditure amounts to 55 per cent of GDP. The country’s hands are tied.

French authorities claim to be aware of the challenges. Yet they do not hesitate to flatter recalcitrant spirits. Mr Valls has again assured people that the 35-hour working week will not be touched. Nor will the government relax constraints on employers that make it difficult to fire workers. The minimum wage is sacrosanct. Civil servants will keep their cushy terms.

The circumstances might be “exceptional” but the taboos remain. The government’s priority is to defend those who are already best protected. Those who are excluded can wait.

The prime minister told MPs that the French social model was not out of date. This is a system that leaves one-in-six young people without any qualifications. Millions of long-term unemployed have no realistic prospect of finding a job. Too many of them are illiterate. This hardly deserves to be called a social model.

Yet the French political class is not in the mood for sacrifice. Many European countries have embarked on drastic policies. Meanwhile, Paris plans to shave €50bn off public spending, equivalent to 4 per cent of the total. It is not in any hurry; making the savings will take three years.

Reforms in EU member states must be combined with action at the European level that supports productive investments as well as measures to fight deflation. The European Central Bank is playing its part but it cannot replace national governments.

If there is something exceptional in France it is the attitude of denial into which all of the political parties have lapsed: denial about shared sovereignty in Europe, denial about the weakness of the national economy, denial about the hard and far-reaching reforms that the country badly needs.

France has incredible potential. Instead of defending an unfair status quo, which increases social inequalities, this is the time to support positive reform, which will enable the nation to regain its credibility in Europe.

France needs to pull itself together – and to keep its word, at all costs. The European Commission should stand firm.

The writer is a French MEP and member of the liberal ALDE parliamentary group

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