Euro regime is working like a charm for France's Marine Le Pen
Marine Le Pen swept 55pc of the working class vote, stealing the Socialist base from under their noses with radical Left policies
By Ambrose Evans-Pritchard
Front National leader Marine Le Pen has ditched the free market view of her father Jean-Marie Le Pen, embracing radical Left policies Photo: AFP/GETTY IMAGES
France is trapped in an economic slump that is hauntingly reminiscent of the inter-war years from 1929 to 1936 under the Gold Standard. Each tentative rebound proves to be a false dawn.
The unemployment rate has continued to climb since the Lehman crisis, in stark contrast to Germany, Britain and the US. It jumped by 42,000 in October to an 18-year high of 10.6pc.
The delayed political fuse has finally detonated. Marine Le Pen’s Front National – these days a blend of nationalist-Right and welfare-Left – swept half the communes of France in the first round of regional elections over the weekend.
The Front won 55pc of voters classified as workers (ouvriers). The Socialist Party was reduced to 15pc of what was once its core constituency, and can no longer make any plausible claim to be the voice of the French working class.
“Nothing has been done about unemployment despite all the promises. Nobody has been listening to the distress,” said Professor Brigitte Granville, from Queen Mary University of London.
Mrs Le Pen has filled the vacuum. She has abandoned the free-market views of her father, party founder Jean-Marie Le Pen, who once espoused "Reaganomics" and vowed to shrink the state.
She is eating into the Socialist base from the Left, vowing to defend the French welfare model against the “neo-liberals” and to defeat the “dictatorship of the markets”. She calls globalisation the “law of the jungle” that allows multinationals to play off cheap labour in China against French labour.
Her plans include a national industrial strategy that swats aside EU competition law, as well as a cut in the retirement age to 60, and a “realignment of taxation against capital and in favour of workers”.
Pierre Gattaz, head of the employers federation MEDEF, calls it a radical agenda stolen from the Left that would destroy France. Yet it clearly makes a heady brew for voters when mixed with nationalist identity politics.
Mrs Le Pen once told The Telegraph that her first act in the Elysee Palace would be to order the treasury to draw up plans for a restoration of the French franc. “The euro ceases to exist the moment that France leaves. What are they going to do about it, send in tanks?" she said.
Professor Jacques Sapir, from l'École des hautes études (EHESS) in Paris, says the Front National made its biggest strides in regions that have suffered the full force of de-industrialisation and the “globalisation shock”.
Many of these areas are in the centre of the country, or in Burgundy and Lorraine, or parts of Normandy and Picardy, that are not key battlegrounds of France’s immigration and culture wars.
Prof Sapir said French industry is slowly being hollowed out. It is a drip-drip effect of closures - typically hitting 150 or 200 workers at a time – that slips below the radar screen of the national press.
“These are the regions of rural misery,” he said.
Prof Granville said there is no doubt that France’s problems are home-grown. It is entangled in a thicket of unworkable laws. There are 383 taxes, of which 50 cost more to enforce than they yield.
The labour code is more than 3,000 pages, acting as a gale-force headwind against job creation.
Yet monetary union has played its part, too. The eurozone’s twin policies of fiscal and monetary contraction from 2011 to 2014 aborted the recovery and led to a deep recession that went on long enough to cause lasting economic damage through labour "hysteresis".
Prof Granville said there is another twist. France and Germany moved in radically different directions after the launch of the euro. While Paris introduced the 35-hour working week, Berlin pushed through the Hartz IV wage squeeze and an internal devaluation within EMU - a beggar-thy-neighbour strategy.
The result is that France has lost 20pc in labour cost competitiveness. It had a current account surplus of 2.5pc of GDP at the start of the last decade. It is now bleeding national wealth slowly - as is Britain, for different reasons - with a cyclically-adjusted deficit of 1.5pc.
She compared it to the slow torture France endured in the early 1930s under the Gold Standard, stoically accepting the "500 deflation decrees" of premier Pierre Laval. The dam broke in 1936 with the election of spurned outsiders, then the Front Populaire.
France cannot easily pursue an internal devaluation of its own in the current zero-inflation climate because this would cause the debt ratio – already 97.3pc of GDP - to spiral higher. It would, in any case, perpetuate the slump.
Even in the current benign conditions of cheap oil and easy money, the Bank of France says growth will be just 1.2pc this year and 1.4pc next year, and the global cycle is ageing. “It is very hard to see how the country can restore competitiveness within the strait-jacket of the euro,” she said.
Simon Tilford, from the Centre for European Reform, said President Francois Hollande is almost certain to ditch EU fiscal targets after the weekend shock. “There is not going to any fiscal tightening before the elections,” he said.
“The Germans are not going to press for it either. They are terrified of doing anything that would further bolster Le Pen. They know she poses an existential threat to the Franco-German axis,” he said.
France’s Leviathan state has ballooned to 57pc of GDP, a Nordic level without Nordic labour flexibility and free markets. This bloated public sector acted as stabilizing force during the Lehman crisis but is now holding back recovery.
Little is being done about the underlying pathologies. The OECD says a quarter of French aged 60-64 are in work – compared with 40pc for the OECD average – chiefly because of early retirement incentives. They can expect to live for 25 years after retiring, compared to 20 in the UK. Public pensions gobble up 14pc of GDP.
Professor Charles Wyplosz, from Geneva University, said France is still not ready to face the truth. “Hollande is a vintage 1970s socialist, and the 2012 election was an exercise in day-dreaming,” he said.
“He never told voters there was a crisis on the way, and now has no mandate to deal with that crisis. He is doing a little labour market reform, [but] it’s a tiny fraction of what is needed.
“Everybody knows what has to be done. There have been hundreds of reports written. But no politician has the stomach to do anything. The political establishment has simply failed to rise to the occasion."
Mrs Le Pen has filled the vacuum. She has abandoned the free-market views of her father, party founder Jean-Marie Le Pen, who once espoused "Reaganomics" and vowed to shrink the state.
She is eating into the Socialist base from the Left, vowing to defend the French welfare model against the “neo-liberals” and to defeat the “dictatorship of the markets”. She calls globalisation the “law of the jungle” that allows multinationals to play off cheap labour in China against French labour.
Her plans include a national industrial strategy that swats aside EU competition law, as well as a cut in the retirement age to 60, and a “realignment of taxation against capital and in favour of workers”.
Pierre Gattaz, head of the employers federation MEDEF, calls it a radical agenda stolen from the Left that would destroy France. Yet it clearly makes a heady brew for voters when mixed with nationalist identity politics.
Mrs Le Pen once told The Telegraph that her first act in the Elysee Palace would be to order the treasury to draw up plans for a restoration of the French franc. “The euro ceases to exist the moment that France leaves. What are they going to do about it, send in tanks?" she said.
Professor Jacques Sapir, from l'École des hautes études (EHESS) in Paris, says the Front National made its biggest strides in regions that have suffered the full force of de-industrialisation and the “globalisation shock”.
Many of these areas are in the centre of the country, or in Burgundy and Lorraine, or parts of Normandy and Picardy, that are not key battlegrounds of France’s immigration and culture wars.
Prof Sapir said French industry is slowly being hollowed out. It is a drip-drip effect of closures - typically hitting 150 or 200 workers at a time – that slips below the radar screen of the national press.
“These are the regions of rural misery,” he said.
Prof Granville said there is no doubt that France’s problems are home-grown. It is entangled in a thicket of unworkable laws. There are 383 taxes, of which 50 cost more to enforce than they yield.
The labour code is more than 3,000 pages, acting as a gale-force headwind against job creation.
Yet monetary union has played its part, too. The eurozone’s twin policies of fiscal and monetary contraction from 2011 to 2014 aborted the recovery and led to a deep recession that went on long enough to cause lasting economic damage through labour "hysteresis".
Prof Granville said there is another twist. France and Germany moved in radically different directions after the launch of the euro. While Paris introduced the 35-hour working week, Berlin pushed through the Hartz IV wage squeeze and an internal devaluation within EMU - a beggar-thy-neighbour strategy.
The result is that France has lost 20pc in labour cost competitiveness. It had a current account surplus of 2.5pc of GDP at the start of the last decade. It is now bleeding national wealth slowly - as is Britain, for different reasons - with a cyclically-adjusted deficit of 1.5pc.
She compared it to the slow torture France endured in the early 1930s under the Gold Standard, stoically accepting the "500 deflation decrees" of premier Pierre Laval. The dam broke in 1936 with the election of spurned outsiders, then the Front Populaire.
France cannot easily pursue an internal devaluation of its own in the current zero-inflation climate because this would cause the debt ratio – already 97.3pc of GDP - to spiral higher. It would, in any case, perpetuate the slump.
Even in the current benign conditions of cheap oil and easy money, the Bank of France says growth will be just 1.2pc this year and 1.4pc next year, and the global cycle is ageing. “It is very hard to see how the country can restore competitiveness within the strait-jacket of the euro,” she said.
Simon Tilford, from the Centre for European Reform, said President Francois Hollande is almost certain to ditch EU fiscal targets after the weekend shock. “There is not going to any fiscal tightening before the elections,” he said.
“The Germans are not going to press for it either. They are terrified of doing anything that would further bolster Le Pen. They know she poses an existential threat to the Franco-German axis,” he said.
France’s Leviathan state has ballooned to 57pc of GDP, a Nordic level without Nordic labour flexibility and free markets. This bloated public sector acted as stabilizing force during the Lehman crisis but is now holding back recovery.
Little is being done about the underlying pathologies. The OECD says a quarter of French aged 60-64 are in work – compared with 40pc for the OECD average – chiefly because of early retirement incentives. They can expect to live for 25 years after retiring, compared to 20 in the UK. Public pensions gobble up 14pc of GDP.
Professor Charles Wyplosz, from Geneva University, said France is still not ready to face the truth. “Hollande is a vintage 1970s socialist, and the 2012 election was an exercise in day-dreaming,” he said.
“He never told voters there was a crisis on the way, and now has no mandate to deal with that crisis. He is doing a little labour market reform, [but] it’s a tiny fraction of what is needed.
“Everybody knows what has to be done. There have been hundreds of reports written. But no politician has the stomach to do anything. The political establishment has simply failed to rise to the occasion."
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