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‘We could be on dangerous ground. So far, we’ve avoided the extreme of the crisis in France as we pay for our debt at a rather cheap rate. But the markets are watching. If they increase the cost of borrowing it could make our public finance situation very difficult. Already all of our income tax receipts go towards the payment of debt, and our government debt-to-GDP ratio is 86 per cent. It will go on rising because he promises to suppress the deficit only in 5 years.’ Current yields for French 10-year bonds, currently around 3 per cent – already at a premium to German bonds’ 1.7 per cent – could be pushed as high as 5 per cent, says Giscard. ‘If the measures Hollande proposes for France become law, it will weaken France’s economic situation.’
Giscard agrees with Hollande’s deficit reduction plan, but says it should happen faster. ‘It’s difficult to wait until 2017, when every year the level of indebtedness will increase.’
He has his own ideas of how to spur the economy: ‘Growth can come only from investment – primarily by private companies. You have to induce them to invest, not threaten them with extra tax but create more incentives to increase research and innovation.’ If you reduce the deficit by €100 billion, he suggests diverting €30 billion as loans to companies for specific projects. Sarkozy started this kind of strategy, he points out – but didn’t go far enough.
Giscard prefers the term debt crisis to euro crisis – ‘the euro is the second most traded currency in the world and remains strong. There isn’t a problem with the currency, but with the banking system and the debt of the member states.’ An unrepentant European, he adds, ‘and to think this money has virtually no political support – no over-reaching coordinated economic policy.’
He doesn’t hold much hope Greece will stay in the Eurozone. He’s argued for some time that it would be better for them to leave, though not for good. ‘If they accept the austerity package of course they will stay, but if not, they could take a leave for a time to adjust their domestic situation. When it is over, they could come back.’
As for Hollande’s current standoff with Angela Merkel on austerity vs. growth, Giscard says that ‘neither France nor Germany really want a fight. It will be a standstill – likely ending up in some growth measures being added to the budget discipline treaty. But to completely renegotiate the treaty is politically impossible.’ While Germany is isolated in its position on enforcing austerity measures, ‘it is the only country which can pay for the others.’
Merkel is right, he says, to reject the Eurobonds option. ‘Eurobonds only “mutualise” risk. This could be done only if all of the partners are in a similar situation. Otherwise you weaken the strongest without helping the weakest.’
Giscard’s challenge to Hollande is to transform the French socialist party into a modern Social Democratic party. ‘Our Socialism is like the Labour party in the UK was 20 years ago.’ The majority of those who support the new president are to the left, rather than the centre-left. In Europe, we’re isolated, whereas in Britain and in Germany the left has re-aligned itself closer to the centre.’ For Giscard, the biggest blow to the French economy was the 35-hour working week, brought in by Socialist Prime Minister Lionel Jospin in 2000. ‘Until then, Germany and France were growing in parallel. After the introduction of the 35-hour week, French growth stalled. It changed the culture of work – people are more concerned now with their free time than their working time.’
He sees a similar threat in the Socialist proposal to fiddle with the French retirement age, though says that if it is limited purely to people who started working at 18, then it isn’t a huge issue to reduce the retirement age from 62 to 60. But if it is an indication that it will be the start of a larger review of retirement, then it’s a bad move. ‘People are living longer. It should be a natural progression that when life is extended, so is the working life. Why is it that in neighboring countries the retirement age is increasing, to 65 and above, when in France we’re talking about cutting it?’
As for whether Hollande can swing his party towards the centre, Giscard is doubtful. Hollande’s career, he says, has been all about compromise rather than leadership. As First Secretary of the Socialist Party, Hollande’s job was to negotiate between unions and the party.
When I ask if Hollande will really be able to modernize the Socialist party after the June elections Giscard’s answer is firm: ‘Non.’
Because you read about france
Also by Edie Lush
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