How everything became François Hollande’s fault

So much blame is heaped on Hollande that it is hard not to feel sorry for the amiable back-room party manager who, his friends say, still cannot believe his good fortune in landing the presidency last year.

Forecasts of insurrection are so recurrent in France that it is easy to be blasé about the latest outbreak. Once or twice a decade, unhappiness with the regime boils up and the country seems on the brink of eruption. Presidents Mitterrand, Chirac and Sarkozy all faced potential social convulsions arising from their inability to solve la crise. The expression applies not to a passing phase, but to the sense of economic doom that has haunted France since the 1973 oil-price shock. The upheavals never came and all three presidents defied predictions of collapse and saw out their terms. Now, only 18 months since he was elected, it is the turn of the hapless François Hollande and this time the ingredients of discontent seem so abundant that many are discerning the perfect storm.

Farmers, businessmen and workers in Brittany have taken to wearing symbolic red bonnets and joined in the revolt against Hollande’s blizzard of new or raised taxes. With France in a foul mood, protests are erupting in many quarters, with bonnets of many colours. Ambulance owners and riding schools have protested, both saying they will go out of business following a big jump in their rates of VAT. Farmers have planned a blockade of Paris for 21 November.

I’ve just heard a lurid analysis from one of the beneficiaries of the discontent – Marine Le Pen. The leader of the once-reviled Front National was on good form when I met her at the party HQ in Nanterre. Marine may have “de-demonised” the old xenophobic party founded by her father, Jean-Marie, but she retains his fondness for apocalyptic rhetoric. “France is going to be put to the fire and sword. I think we are in a period of revolt,” she told me.

The popular leading woman of French politics blames the entire political establishment for bringing France to its knees, while the establishment in turn holds her responsible for a rise of racism in public discourse. But just about everyone outside the Parti Socialiste would agree with her diagnosis: “The French have the feeling that François Hollande doesn’t have a clue where he is going. That’s what is stirring the anxiety.”

So much blame is heaped on Hollande that it is hard not to feel sorry for the amiable back-room party manager who, his friends say, still cannot believe his good fortune in landing the presidency last year. He is held responsible for just about everything that reflects the rancid mood in the country. If France’s once-glorious football team seems destined to crash out of the World Cup, c’est la faute à Hollande. If a lone gunman stalks Parisians, it is a symptom of his morbid reign.

France always falls out of love with its elected monarchs, but le désamour with Hollande, now the most unpopular president since polling began in 1958, has been spectacularly swift. It springs from his bumbling leadership, addiction to taxes and failure to halt unemployment and economic decline.

More broadly, Hollande and Jean-Marc Ayrault, his emollient prime minister, are paying the price for France’s unhappiness with the modern world. While big French firms have prospered in the globalised economy, successive presidents, including the supposedly reformist Nicolas Sarkozy, have shielded their people from the new mentality of competition. The enemy remains le libéralisme anglo-saxon, the alien creed deemed to be deployed against France by everyone from the Chinese to the European Commission.

Hollande has belatedly explained that France’s decline stems from a decade-long slide in competitiveness, but there is only so far he can go without touching left-wing taboos and betraying his promises to shore up the Gallic social model. In private, senior ministers accept that public spending has to be slashed from 56 per cent of GDP and that labour laws must be loosened, but they fear the revolt such actions could trigger.

Hollande is trying to weather the ridicule being showered on his presidency. He is making the most of the muscle that France has wielded in the Middle East, over Iran in particular, and in his successful military venture against Islamists in the Sahel. Yet some figures in his own entourage worry that he has failed to grasp the mood of catastrophisme and that muddling through to better times may not work.

In Hollande’s favour, one should remember that, unlike David Cameron or Angela Merkel, he is not a mere government leader, who can be disowned by parliament or rattled into calling elections. He holds the near-absolute powers of a president of the Fifth Republic, with a subservient parliament that only he could dissolve. And Hollande has lately been reminding nervous visitors of a favourite saying of his late mentor François Mitterrand: “Il faut laisser du temps au temps” – you have to give time time to do its work.

Charles Bremner is the Europe editor of the Times

Can everything really be Hollande's fault? Image: Getty

This article first appeared in the 20 November 2013 issue of the New Statesman, iBroken

Ralph Orlowski / Getty
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Labour's investment bank plan could help fix our damaging financial system

The UK should learn from the success of a similar project in Germany.

Labour’s election manifesto has proved controversial, with the Tories and the right-wing media claiming it would take us back to the 1970s. But it contains at least one excellent idea which is certainly not out-dated and which would in fact help to address a key problem in our post-financial-crisis world.

Even setting aside the damage wrought by the 2008 crash, it’s clear the UK’s financial sector is not serving the real economy. The New Economics Foundation recently revealed that fewer than 10% of the total stock of UK bank loans are to non-financial and non-real estate businesses. The majority of their lending goes to other financial sector firms, insurance and pension funds, consumer finance, and commercial real estate.

Labour’s proposed UK Investment Bank would be a welcome antidote to a financial system that is too often damaging or simply useless. There are many successful examples of public development banks in the world’s fastest-growing economies, such as China and Korea. However, the UK can look closer to home for a suitable model: the KfW in Germany (not exactly a country known for ‘disastrous socialist policies’). With assets of over 500bn, the KfW is the world’s largest state-owned development bank when its size is measured as a percentage of GDP, and it is an institution from which the UK can draw much-needed lessons if it wishes to create a financial system more beneficial to the real economy.

Where does the money come from? Although KfW’s initial paid-up capital stems purely from public sources, it currently funds itself mainly through borrowing cheaply on the international capital markets with a federal government guarantee,  AA+ rating, and safe haven status for its public securities. With its own high ratings, the UK could easily follow this model, allowing its bank to borrow very cheaply. These activities would not add to the long-run public debt either: by definition an investment bank would invest in projects that would stimulate growth.

Aside from the obviously countercyclical role KfW played during the financial crisis, ramping up total business volume by over 40 per cent between 2007 and 2011 while UK banks became risk averse and caused a credit crunch, it also plays an important part in financing key sectors of the real economy that would otherwise have trouble accessing funds. This includes investment in research and innovation, and special programs for SMEs. Thanks to KfW, as well as an extensive network of regional and savings banks, fewer German SMEs report access to finance as a major problem than in comparator Euro area countries.

The Conservatives have talked a great deal about the need to rebalance the UK economy towards manufacturing. However, a real industrial policy needs more than just empty rhetoric: it needs finance. The KfW has historically played an important role in promoting German manufacturing, both at home and abroad, and to this day continues to provide finance to encourage the export of high-value-added German products

KfW works by on-lending most of its funds through the private banking system. This means that far from being the equivalent of a nationalisation, a public development bank can coexist without competing with the rest of the financial system. Like the UK, Germany has its share of large investment banks, some of which have caused massive instabilities. It is important to note that the establishment of a public bank would not have a negative effect on existing private banks, because in the short term, the UK will remain heavily dependent on financial services.

The main problem with Labour’s proposal is therefore not that too much of the financial sector will be publicly owned, but too little. Its proposed lending volume of £250bn over 10 years is small compared to the KfW’s total financing commitments of  750 billion over the past 10 years. Although the proposal is better than nothing, in order to be effective a public development bank will need to have sufficient scale.

Finally, although Brexit might make it marginally easier to establish the UK Investment Bank, because the country would no longer be constrained by EU State Aid Rules or the Maastricht criteria, it is worth remembering that KfW’s sizeable range of activities is perfectly legal under current EU rules.

So Europe cannot be blamed for holding back UK financial sector reform to date - the problem is simply a lack of political will in the current government. And with even key architects of 1980s financial liberalisation, such as the IMF and the economist Jeffrey Sachs, rethinking the role of the financial sector, isn’t it time Britain did the same?

Dr Natalya Naqvi is a research fellow at University College and the Blavatnik School of Government, University of Oxford, where she focuses on the role of the state and the financial sector in economic development

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