A French Banker's Refreshing Report

Recent days have seen a variety of reports come across my screen; Governor Christian Noyer's letter presenting the 2012 Annual Report of the Banque de France was refreshing because it deviated in part from the droning, repetitive structure of reports from the IMF and even from our own beloved Federal Reserve System.

Some of the issues he discusses relate well to a popular post, "Plus ça change, plus c'est la même chose," from February.  Governor Noyer notes that by the end of 2013, the French economy is likely to have had two consecutive years of zero GDP growth, which is quite extraordinary.  Public debt is likely to end the year at levels not seen since WWII. 

Paul Krugman and his political followers have cobbled together a counter-intuitive narrative of low growth being about inadequate fiscal stimulus.  To this, Noyer says simply, "...this vision is incorrect."  He notes, as we did in our earlier post, that French competitiveness has been waning for some time.  For this and other reasons, France and much of Europe haven't benefited from economic globalization, despite having significant economic, human capital, and technological assets. Again, in our earlier post, the Alliance Bernstein analysts showed how much France lost ground to Germany because of its lack of competitiveness.

For the past ten years, he notes, France has had the highest levels of public spending in the world.  As the public debt soared, he contends that French households saw through this process to higher future taxation and cut their spending accordingly and quickly. 

France will have committed about 4% of GDP per year from 2010-2013 in order to stabilize the ration of debt to GDP at 90%.  Governor Noyer realizes that there has to be another set of policies which help release the growth genie from the lamp.  He focuses on the broad issues of regulation and unproductive social programs. 

He notes that France is the biggest spender on employment programs, but it has one of the Eurozone's highest unemployment rates, particularly among younger workers.  Money spent on expensive programs for professional retraining have had no results.  Welfare spending in total, he writes, accounts for 30% of GDP! 

In the administration of President Hollande, this is not something discussed over champagne in the Palace; the points Governor Noyer makes have to be said, and he says them in a style acceptable to the French elite.  To some extent, though, he dances around the problem, rhetorically. 

Nobody has put the problem in such stark and easily understandable terms as did CEO Maurice Taylor of Titan International when he responds to an inquiry about taking over a French tire plant in danger of closing.  "The French workforce gets paid high wages but only works three hours. They get one hour for breaks and lunch, talk for three and work for three. I told this to the French union workers to their faces.  They told me that's the French way."

I don't want to make it seem as if the U.S. unionized work force is superior.  When Hostess Brands slid into bankruptcy, one of the work rules on which the unions would not bend was this: bread trucks and cake trucks could not be consolidated.  Never mind that the customers didn't want two separate trucks tying up their parking lot and receiving for adjacent categories on the shelves.  Never mind that it was inefficient and duplicative.  Well, we know where that vision of a business took the company. 

The basic problem for Governor Noyer, as everywhere, is that he is a central banker: an intelligent and articulate one at that.  Politicians have to see some payback for themselves in challenging an ossified welfare state.  Don't hold your breath.