Focus on France Ian Sparks reports from Paris

EURO-REPORT

FOCUS ON... France

Ian Sparks reports from Paris on the new government’s struggle to revive manufacturing.

The honeymoon period is over, and France’s socialist president Francois Hollande is now facing the Herculean task of honouring his election pledge to revive France’s crumbling manufacturing industry.

Amidst deepening economic gloom, Mr Hollande has optimistically renamed his new industry minister Arnaud Montebourg as ‘minister for industrial renewal’and vowed to reverse the decline in output which has doubled in the past ten years alone.

Naturally, the new president blames his right-wing predecessors for the shrinking of wealth created by French industry from 27 per cent to 14 per cent since 2002. But after less than two months in office, Mr Hollande’s government has already suffered a major legal setback that could see the sector further diminished in the face of plunging sales that cannot compete with cheaper international imports.

Mr Montebourg had only been in the job for one week when France’s powerful CGT union came to him in May with a list of 46 companies it said were planning to shut production sites and directly or indirectly threaten up to 90,000 jobs. The new minister swiftly attempted to have a limit on the number of lay-offs firms can make enshrined into law – but this was struck down by France’s highest court as ‘unconstitutional’.

And the very next day, unions warned that car giant Peugoet was planning to announce the closure of a factory in the Paris suburb of Aulnay-sous-Bois that employs 3600 people. Two weeks later, in mid-June, elected officials from 60 car-producing towns and cities in France sent Mr Montebourg a 67-page report urging the government to do more to save the ailing auto industry. It warned: “Unless we react energetically, we will reach a critical point where industrial decline enters a fatally irreversible cycle. This is the situation the United Kingdom went through 20 years ago. It’s the one that’s happening in Italy. It’s the one that is threatening the French car industry in 2012.”

It implored the government to slap heavier taxes on imported, high-polluting cars and give drivers ‘scrappage subsidies’ when buying more eco-friendly French-made vehicles.

But critics quickly responded that any plan to subsidise car purchases would cost the government hundreds of millions of euros it could not afford when it is bound by an EU agreement to reduce its budget deficit to 3 per cent of gross domestic product by 2013.

In other sectors, loss-making Air France has announced 5000 job losses over the next two years but said it hoped to avoid compulsory redundancies by encouraging early retirement, voluntary departures, parttime working and work-sharing.

And unions have warned of another 10,000 cuts among mobile phone company call centre workers as jobs are moved abroad, mainly to low-wage French-speaking countries in France’s former African colonies.

The new president blames his right-wing predecessors for the shrinking of wealth created by French industry.

Union demands

And while private sector industries are insisting they need to reduce costs to avoid job cuts and closures, Mr Hollande is also facing demands from the hardline Force Ouvriere to fulfil campaign pledges to raise the minimum wage, reduce working hours and lower the retirement age.

Already there are signs Mr Hollande may feel he has promised more than he can provide, as he replied tentatively to the unions on the minimum wage issue: “There will be an increase, but we have to be careful that this does not destabilise companies, especially small- and medium-sized companies which face competitiveness challenges.”

But Paris-based economist Bruno Cavalier believes the socialists are chasing the ‘impossible dream’ of a return to the 30 years after World War Two when unemployment fell, living standards soared and the economy boomed under state guidance.

He said: “Their whole focus on reviving industry is wrong from the start. This is an outdated struggle. Wages and social costs in industry mean France will continue to lose market share to foreign competitors, whatever we do. Instead we need to face up to the fact that we live in a service economy and it’s going to stay that way.”

But Mr Hollande does look set to live up to one manifesto promise aimed at balancing the country’s books by capping bosses’ pay at state-owned companies at €450,000 per year.

French finance minister Pierre Moscovici said the move was intended to make nationalised industries ‘more ethical’. The pay limit is meant to pin executive earnings to no more than 20 times the wages of the lowest paid workers employed by the state.

Mr Moscovici said: “Earning €450,000 a year doesn’t seem to me a deterrent if we want to have quality men and women at the head of our companies. This measure is needed to make state companies more ethical and to respond to the demands of justice and transparency at a time of economic crisis.”

Only 20 executives currently had salaries over the new limit, which would be voted into law later this year, Mr Moscovici said. It would also include rules on stock options and ‘golden parachute’ packages, apply to all companies in which the state has majority ownership, including the postal service, nuclear power giant Areva, electric utility EDF, railway company SNCF and public transport operator RATP, he added. n