French government's dominant role in economic activity has suddenly found new favor at home and grudging respect abroad

TO BE NOTED: From the WaPo:

"France's Oft-Derided Largess Insulates Many From Slump

By Edward Cody
Washington Post Foreign Service
Monday, May 25, 2009

MENTON, France -- In recent years, Jean Beaufranqui and his wife have spent most of their time in Menton, enjoying the sunshine and gentle Mediterranean breezes that have made this little town into a retirement haven, France's version of Miami Beach.

And now, even as the world reels from its most painful economic crisis since the 1930s, Beaufranqui's thoughts have turned not to budget cuts but to buying an apartment here and settling in full time. As a retiree -- he stopped working almost 19 years ago, at the standard age of 60 -- the former metallurgist has sailed smoothly through the economic storm as the French government regularly deposited his monthly pension payments.

"Not really," he responded when asked whether the financial crisis had affected his standard of living, a question that seemed to interest him less than the petanque bowling tournament he was watching from a park bench beside the beach.

For Beaufranqui and millions of other French people dependent on tax-financed largess, this country's cozy social protections, vast numbers of bureaucrats and unhesitating government intervention have proved to be a shelter from want in these hard economic times.

Denounced for decades as a millstone preventing growth and competitiveness, particularly by free-market advocates in the United States, the French government's dominant role in economic activity has suddenly found new favor at home and grudging respect abroad.

The crisis has landed hard in France, just as it has elsewhere. European Union specialists estimated last week that the number of unemployed is likely to rise to more than 3 million by next year as factories close. But the French economy is expected to shrink by just 3 percent, markedly less than in Britain or Italy, largely because of the country's traditionally high level of government spending, they added.

More significant in human terms, broad sectors of the population -- bureaucrats, retirees, teachers and the millions of others whose livelihood depends directly or indirectly on public outlays -- find themselves surrounded by a government cushion. The effects are easy to see: As the crisis grew and began to obsess French officialdom in Paris, for instance, Alpine ski resorts reported full bookings for the winter and spring seasons.

Perhaps nowhere has the buffer effect been more evident than in Menton, a Riviera town where a third of the population is retired and the largest employers -- City Hall, the hospital and a municipal casino just off the beach -- are government-run. Mayor Jean-Claude Guibal, who also represents Menton in the National Assembly, said the city has suffered no large layoffs in the economic crisis for the simple reason that it has no factories to lose; service jobs catering to retired people have endured.

"The retired people constitute an element of stability," Guibal said in an interview in City Hall, at the top of a square sloping toward the sea, shaded by palm trees and ringed by cafe terraces under stucco arcades.

The crisis has been felt here, of course. Fabrice Massiere, a cheese merchant at the Menton Market, said his business was off sharply because the number of visitors has declined. Guibal said income from the casino and tax revenue on real estate transactions have sunk, forcing him to raise property taxes for the first time in 13 years. But the heavy dependence on government subsidies or official salaries, he added, has put an economic fence around a large part of the Menton region's 66,000 inhabitants.

"This makes us less sensitive to the fluctuations of the world economy," said Guibal, who described himself as a free-market advocate and a member of President Nicolas Sarkozy's pro-business coalition.

Sarkozy, a free-market champion who was elected in 2007 on a pledge to help France "work more and earn more," has insisted the crisis will not deter him from trying to reduce the government's involvement in the economy. A senior aide, Henri Guaino, said in a television interview this month, for instance, that Sarkozy will continue to replace only half of the bureaucrats who retire from ministries and other government agencies.

"The French model has its advantages," Guaino said, "but we must not go too far in the opposite direction either."

Beaufranqui no longer has to worry about it, but Prime Minister François Fillon has begun ruminating publicly about the possibility of raising the standard retirement age, perhaps by a year, to 61, to soften the system's impact on the government deficit. The deficit in France's version of Social Security alone is likely to reach $12 billion by the end of the year, pushed up by a drop in salary deductions due to the crisis, officials at the Finance Ministry estimated.

Nicolas Véron, a French economic analyst at the Brussels-based Bruegel research foundation, said a crucial point will come when the crisis begins to ease and growth resumes, which European officials predict could happen next year. What seems now to be an advantage protecting many French people from harm, he cautioned, could turn out then to be what free-market promoters argue that it is -- a shackle on economic activity.

"It could hurt us then more than it is helping us now," he said.

In the meantime, Sarkozy's government has pocketed the benefits over the last nine months of crisis. The more than 5 million people employed directly or indirectly by the government may be a drag on the economy in normal times, specialists said. But as the crisis grinds along, they represent a stable pool of workers who have secure jobs and whose incomes continue to pulse through the economy.

Economists estimate that nearly a third of France's economy derives in some way from government-provided social protections, the highest proportion in the world, ahead of even such social-protection icons as Sweden and the Netherlands. In all, they estimated, French government outlays in salaries and other benefits amount to as much as $100 billion a year.

That sum, three times the government's economic stimulus plan announced early this year, helps explain why Sarkozy resisted President Obama's call for more stimulus spending at the London economic summit in March.

Sarkozy, who describes himself as a friend of the United States but is never one to shy from the spotlight, has taken credit for much of what the Group of 20 summit accomplished in London, calling decisions taken there a fulfillment of his own promise to "refound capitalism."

In remarks to members of Parliament leaked to the press, Sarkozy reportedly said Obama's lack of experience had proved to be a handicap for taking bold steps, and the French president cast himself in the role of experienced statesman ready to show the way -- the French way.

It is also the way of Josephine Baguerre, an 85-year-old widow who spends 10 months a year in Menton. Baguerre was taking in the sun one recent weekday during a rest stop on her way back from the market.

An Alsatian whose husband was a miner, she said her plans for the day included cooking lunch, taking a siesta and perhaps enjoying a cut-rate dinner at the subsidized miners' retirement home just up the hill from her rented apartment. The mine's retirement system also allows her to live rent-free in a company-provided home back in Alsace, she said. Her pension payments cover the rent on a Menton apartment and allow her to travel back and forth as the spirit moves her.

"Otherwise, I could never manage it," she said, heading off with her bag of groceries."