By David Gow
You can hear the tumbrils rolling down Whitehall towards the Treasury: the French economy is in dire need of “shock therapy” and a “comprehensive programme of structural reforms”. Off with Hollande’s head. The IMF and Louis Gallois, former chief of aerospace/defence group EADS and the SNCF, have combined to deliver an Exocet to the heart of the Republic.
The IMF, headed by Christine Lagarde, finance minister under the seriously under-performing Sarkozy regime, and Gallois, close to the ruling Socialist Party (PS), have confirmed (in separate reports yesterday) the view of Berlin: the gravest threat to the eurozone is not in Athens, Madrid or Rome; it’s in Paris. And this emerged on a day when the (seriously over-rated) forecast from the CEBR in London is that the UK economy will outperform its EU peers for the next two years.
So: who needs Europe? Well, clearly, as the Chancellor would say, the UK needs it to perform well.
France is rightly emerging as the key to recovery and renewal within the EZ – and hence to Britain’s own prospects. The IMF warns France could fall behind Spain and Italy if it does not arrest industrial decline – French manufacturing’s share of GDP is 10% compared with the UK’s 11% and Germany’s 22%. Its indigenous car industry, especially Peugeot-Citroen, is in crisis (unlike the UK’s foreign-owned equivalent). Its two southern neighbours are slowly and very painfully regaining competitiveness thanks to savage internal devaluations (structural reforms, aka wage-cuts). Gallois, therefore, proposes 22 separate reforms – including steep (€20bn) cuts in business social insurance contributions. These will be discussed in cabinet today.
But, before the British latter-day sans culottes get over-excited, the Gallois plan and the IMF prescriptions are eerily redolent of the proposals for an industrial strategy worthy of its name put forward here in Britain last week by…Michael Heseltine. (Tarzonomics, according to The Economist). And even these have not been guillotined …yet. The UK, like France, Germany and its other EU partners, is engaged in a rebalancing of the economy to make it fit-for-purpose in the 21st century. The EU remains the best framework within which we can, together, achieve that goal.