A Grimy Dipstick into France’s Gritty Economic Realty

The first quarter of 2012 was brutal for businesses in France: 16,206 filed for bankruptcy. A trajectory that may demolish the prior annual record set in 2009 during the worst of the financial crisis when 61,595 firms went bust. Since then, bankruptcy filings eased off:  58,673 in 2010 and 58,195 in 2011. But now the direction has changed—and worse, it is threatening a lot more jobs.

Bankruptcy filings aren’t clean, unlike GDP numbers which are adjusted and groomed and beautified in a million ways; they’re raw and ugly, but useful, like a grimy dipstick into the gritty reality at the bottom of the economic crankcase. Under French law, they fall into three categories: liquidation, restructuring, and “safeguarding,” an option since 2005 that allows debtors that are not yet insolvent, but can demonstrate financial distress, to benefit from the safeguarding proceedings—with the goal of keeping teetering companies from toppling.

While the increase in the number of the filings was only 0.3% over last year, the composition has changed and larger firms with more employees have filed. Tiny outfits with 0 to 2 employees, representing the vast majority of the filings (11,565), actually declined in number, many having been wiped out earlier during the crisis. But the larger companies with sufficient resources to survive the crisis were getting whacked: filings by those with 3 to 9 employees (3,490 firms) inched up 1.6%, those with 10 to 49 employees (1,028 firms) increased by 5.2%, those with 50 to 99 employees (69 firms) jumped 11.3%, those with 100 to 200 employees (40 firms) skyrocketed a sobering 73%, and those with over 200 employees (14 firms) jumped by 16.7%.

That larger firms are now crumbling at a faster rate is a sign of just how tough the economy has become. Unlike their German counterparts, they’re not focused on exporting to developing nations where business has been a heck of a lot better than in France or in much of Europe. The French auto industry is an example. It’s in deep trouble, with nefarious consequences for smaller suppliers. But not just in France. The R-word—restructuring—is being bandied about with dire warnings of plant closings and mass layoffs. Exactly what you can’t easily do in Europe.

The companies that filed for bankruptcy in the first quarter represented 65,200 jobs that are now threatened or are already evaporating—up a breathtaking 16% from last year. Unemployment has grown for ten months in a row to 2.87 million in February, the highest since October 1999. Unemployment and underemployment rose to 4.28 million, the highest ever. Job offers sagged 9.5% from a year ago.

With companies and jobs at risk, the French are searching for a savior, a veritable deus ex machina. Well, not Nicolas Sarkozy and not François Hollande, though one of them will most likely occupy the Elysée for the next five years. But protectionism—according to a just released IFOP poll. And it would violate the most fundamental rules of the European Union:

– 82% believe that globalization is bad for jobs in France.

– 75% believe that competition with countries like China or India will have negative consequences for jobs in France over the next decade.

– 69% believe that globalization worsens France’s budget deficits.

– 70% believe that a solution to globalization would have to include an increase in duties on products imported from developing nations.

– 62% believe that France should erect customs barriers against imports from developing nations if the European Union refuses to do so.

– And only 22% believe that open markets are a “good thing” for France.

However, instead of drowning in a sea of protectionist unanimity, some intrepid dissenters spoke up:

Without globalization there would be no roadworthy car, there would be no cell phone in France, there would be no internet line…. This survey is really an expression of the pervading cowardice that has spread over the French people, incapable of taking up a vital challenge, that is to roll up their sleeves to take up the challenge of competition and revive our forces thwarted by massive assistance and social excess…! Get up, France, go to work, our children will thank you!

The majority of the businesses that have filed for bankruptcy have been in trouble for years and have used up their resources trying to stay alive. Now the moment of truth has come.

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