France Cut by Fitch, Kicked by Bundesbank, Jilted by Logic, Has Newfangled Solution: Sunday Shopping. And Blows it

Friday, after markets in the US had closed and while most of France was asleep and no one was supposed to pay attention, ratings agency Fitch – a jointly-owned subsidiary of the French company FIMALAC and Hearst Corporation – cut France’s credit rating one notch to “AA” from “AA+”.

The French government had disclosed in September that its budget deficit would actually rise, despite previous promises that it would decline. Instant brouhaha in Brussels. And Fitch slapped France with a Rating Watch Negative. The government, in an effort to appease Fitch and the EU, announced new budget savings of €3.6 billion – a measly 0.17% of GDP – for 2015; it would lower the official deficit target to 4.1% of GDP. Still far above the EU limit of 3.0%, one of the core rules designed to avoid debt crises of the kind that the Eurozone is still simmering in.

Now, in “a significant slippage against prior budget deficit targets,” as Fitch pointed out, the government projects an even higher deficit of 4.4% of GDP for 2014. And the projections for 2015 – unachievable as they may be – remained at 4.1%, where the deficit had been in 2013, and when the government had promised up and down to get it below the EU limit by 2015. But forget it. The government kicked that can to 2017.

Instead of putting its foot down, the European Commission tried to avoid ruffling feathers in France. It didn’t want to give the rightwing, anti-euro National Front any additional ammo. So it granted France even more time to comply.

But Fitch lambasted France’s relentlessly rising deficits, its persistent inability to comply with the EU’s deficit rules, and its outright refusal to stick to its very own deficit targets. France’s credibility was on line, Fitch said, and the ability of its public finances to “absorb shocks has been significantly reduced.”

On Saturday, Bundesbank President Jens Weidmann weighed in. Germany and France are joined at the hip. They’re each other’s largest trading partners. They depend on each other for economic growth. So he told the French paper Le Figaro that the Commission’s decision to give France a few more years would damage the credibility – what little is left – of the EU’s budget rules (first broken with utter impunity by Germany itself when it was the Sick Man of Europe).

He worried that the EU budget rules are “in the end up for negotiation, and that national governments can delay budgetary consolidation in perpetuity.” France, he said, needed to come up with new measures to make its economy more competitive and its labor market more flexible.

So France is coming up with new potent measures to exit its economic debacle. Sunday shopping is one of them. If it weren’t so sad, it would be hilarious. By WOLF STREET contributor Hilary Barnes, of Euro Politico Twitting:

A visitor to France taking a casual look at the current news headlines might be forgiven for thinking that the major issue facing France today is whether supermarkets should be allowed to stay open, under certain conditions, for five Sundays a year or 12, as the socialist government of President François Hollande is proposing.

The visitor might be even more surprised when learning that this minor tweak to French habits is seen as playing a critical part in persuading the European Commission, as well as Chancellor Angela Merkel of Germany, that France is making serious efforts to reform the country’s economy.

This matters. If the European Commission is not convinced, it may expose France to the treatment that was applied to Greece, Spain, and Italy when the Commission tells the French what they must do in order to get their budget under control.

So far the commission has backed away from going this far, well aware that it would provoke a major crisis between France and the commission, or even, as some observers say, a revolution in France.

It also matters because the issue is causing a deepening split in the ranks of the Socialist Party in the National Assembly, the legislature.

Few people think that the split would go so far as to cause the government to go down to defeat on a vote of confidence. This situation will be avoided at all costs: the president and his government are so unpopular that to risk a new election to the National Assembly would be suicidal for the socialists.

But it might well turn into an issue on which the president finds he has to replace Prime Minister Emmanuel Valls, who’d been appointed in early April as a reformer, with someone else.

The likelihood of this happening may have increased with the decision of Mme Martine Aubry – who lost against François Hollande during the Socialist Party’s presidential primaries in 2012 – to come out in direct opposition to more Sunday shopping.

She described the proposal, one of several reforms designed “to unlock the economy” proposed by Economy Minister Emmanuel Macron, as “a regressive reform” against the arduous struggle by the socialists of yesteryear to make Sunday a day of rest.

As minister of labor at the beginning of the century, she was responsible for implementing the cut in the working week from 39 to 35 hours with no reduction in pay.

Whether one likes or dislikes Mme Aubry, or approves of policy preferences that are well to the left of the social democratic profile favored by President Hollande, she is a powerful personality, and it is quite possible that with her left-wing profile she would prove more successful than Prime Minister Valls in holding the party in the National Assembly together. Whether that would be good for France is an open question (By Hilary Barnes, Euro Politico Twitting).

This is what France is wrestling with: its own governmental incompetence and a categorical refusal to change, even in minor things, to introduce just a teeny-weeny bit of flexibility, such as allowing people to go grocery shopping on Sundays – well, not every Sunday, just on 12 Sundays per year. Like most of the other reforms introduced over the years, Sunday shopping a few more times a year won’t do a thing for the French economy. It’s just another one of the famous French non-reforms. But hilariously, the government is even blowing that.

Any lingering hopes that the debt crisis was put to rest are brutally dashed. Investors are bailing out: Greek stocks plunged 20% in three days. Read…   Eurozone Comes Back to Reality With a Crash

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  6 comments for “France Cut by Fitch, Kicked by Bundesbank, Jilted by Logic, Has Newfangled Solution: Sunday Shopping. And Blows it

  1. Julian the Apostate
    Dec 15, 2014 at 6:44 am

    I have read for years about the Barbarism of the US working so many hours a week that there is no time for Americans to explore higher culture like the Europeans…this seems deeply ingrained in France in particular. It does not surprise me that rolling back this specific ‘cultural advance’ over the rest of the world, blanking out the observation of Dr. Franklin, that most quintessential of historic Americans, that ‘Creditors are a superstitious Sect, great Observers of set Times and Dates.’ They don’t care how long it takes to make enough money to repay the loans as long as they are paid on time. How bourgeoise.
    Now reality begins to intrude on France, and predictably they have dug in their heels against this retrograde motion in the solar system where their WISH is the gravity that makes the orbits work.

  2. Michael Gorback
    Dec 15, 2014 at 7:04 am

    I guess it would never occur to anyone in France to question whether the government has the right to tell businesses when they can be open. All they can focus on is how much that right extends.

    Why does anyone in France need a “day of rest” with 5 weeks of paid vacation and a 35 hour work week? Is it the stress of those 7-hour work days?

    Imagine the horrific circumstances of some poor Frenchman who has to work 7 days/week, toiling away for 5 hours at a time and wracked with anxiety about what to do after lunch.

  3. Paulo
    Dec 15, 2014 at 8:31 am

    Sunday shopping is regressive. What is sold on Sunday can always be bought on Saturday or Monday. It at least provides one day off for families to be together.

    I remember when I lived in a small coastal town in BC. there was no Sunday shopping. In fact, the local building supply centres that stayed open on Saturday shut down Sunday and Monday in order for their employees to have two days off in succession. Drug stores took turns opening on Sundays. Then, drug stores suddenly began to sell groceries….things like tuna and toilet paper, etc. Gradually, grocery stores began to sell drug products and finally introduced full pharmacies. Then, somegrocery stores began to open on Sundays. Finally, all grocery stores are open all days, and some 24 hours per day. There is talk of some stores being open on Christmas day.

    Do we eat more food because stores are open Sunday’s? No. Are more houses built because lumber can be bought on Sundays? No. But if one store starts it everyone has to follow suit or risk losing market share. Finally, everyone is subject to working every day and finally everything has to be open because nothing shuts down…and, you get my point.

    In this race for the bottom the real losers are families and those required to work part-time or whenever scheduled. The bosses would keep the store open 24/7 if there was a buck in it.

    Life is short and finite. No one will inscribe on their tombstone “I wish I had worked more and spent less time with my family”.

    In case you think I don’t know what I am talking about, I once worked 100 days straight 10-14 hours a day as a pilot. I made a lot of money. The company made a lot of money. By day 80 I was bushed and dangerous. I kept working. On day 100 I quit. Nowadays, such duty times are illegal. Been there done that and it isn’t worth it.

    • Michael Gorback
      Dec 15, 2014 at 9:58 pm

      Ridiculous. If I want to sell shoes on Sunday and my customers want to buy shoes on Sunday why should anyone interfere?

      I’m not a slaveowner. I can’t force people to work Sundays to sell shoes. If they won’t then I’m not paying enough. That’s what happened when you were a pilot. The high pay wasn’t worth it and you quit. You weren’t in a Soviet gulag doing forced labor. During my internship I was on 36 hours and off 12 for the better part of a year and earned $16,800. My choice, no crying. It was worth it to me.

  4. Vespa P200E
    Dec 15, 2014 at 9:19 am

    Was in Grenoble during Thanksgiving week. Well to my eyes nothing pressing with the start of X-mas activities and lively X-mas market on the city square.

    That said – French are paying for the live for today and bring it on socialism aka “worker’s paradise” worker protection turned amok and into worst kind of labor racket for some time. Same goes for Italian labor market. Ironically the company I visited in Grenoble is busy trimming manufacturing payroll and I was surprised to see so many ex-high tech workers who had been displaced working in the pharma company.

    Sorry nanny worker’s paradise EU countries as you are leaping what you sow and heck what did they expect by voting in the socialist party jokers?

  5. williamwilliam
    Dec 15, 2014 at 1:00 pm

    France is redistricting its voting areas in an effort to stop Le Pen’s Front National (FN) party. Finally, the voters may be able to vote in change, but the current powers are pulling every dirty trick possible to keep things as they are.

    I suspect Sarkozy has a shot to return to power and redistricting may be happening to facilitate his return, as well. Sarkozy actually has a history of initiating economy-boosting programs (holiday from inter-generational gift taxes for example).

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