Does France have right plan to revive its economy?

By Sarah Dilorenzo

Associated Press

Published: Tuesday, May 21 2013 7:39 a.m. MDT

In this Sept. 27, 2012 file photo, French Minister for Industrial Recovery Arnaud Montebourg delivers a speech after meeting workers and trade union representatives of ArcelorMittal, in Florange, northeast France. The 50-year old lawyer Montebourg, is the man charged with reviving France's shrinking economy and attracting businesses to invest in the country, but according to some analysts he is fast gaining a reputation for doing the opposite, as public spats with international companies, and efforts to block employee layoffs are being seen as the epitome of what is wrong with the French economy.

Mathieu Cugnot, File, Associated Press

PARIS — The man charged with reviving France's shrinking economy and attracting businesses to invest there is gaining a reputation for doing the opposite.

As the country's first-ever minister for industrial renewal, Arnaud Montebourg has told the world's largest steelmaker it is not welcome in France; exchanged angry letters with the head of an American tire company he was supposedly wooing; and scuttled Yahoo's offer to buy the majority of a video-sharing website.

Montebourg, a 50-year-old lawyer from Burgundy, is the public face of President Francois Hollande's plan to revitalize Europe's second-largest economy, which is in recession and grappling with 11 percent unemployment. The plan is to make the French economy more competitive globally — especially for manufacturers — by making it easier to fire workers, offering a payroll tax credit and investing in small businesses.

Economists have praised the labor reforms as a step in the right direction. But mostly they say France's economic plan is all wrong: It is too complicated; it favors a top-down approach to innovation; and it ignores some of the most serious problems plaguing France's economy, such as high labor costs.

And then there is Montebourg, whose public spats with international companies and efforts to block layoffs are making France look like an unappealing place to do business.

In fairness to Montebourg, he's not so much the problem as he is the symbol of it, analysts say. Even if Hollande were to replace him — and that's looking increasingly likely — it's unclear whether the substance of the industrial renewal strategy would change.

The sheer size of France's economy has cushioned it somewhat from the worst of Europe's debt crisis, which has brought depression-level unemployment to countries like Spain and Greece. It is home to many huge industrial companies, like EADS, parent company to plane-maker Airbus; Total, the world's fifth-largest investor-owned oil company; and Sanofi, the world's fourth-largest pharmaceutical company. France is also a cradle for design, high fashion and fine wine, embodied by world leaders like LVMH and L'Oreal.

But make no mistake, analysts warn: The French economy, which had no growth in 2012 and shrank at an annualized rate of 0.8 percent in the first three months of 2013, is in slow-motion free fall.

Profit margins at French companies are the lowest they have been in 30 years. In the past decade, one in six industrial jobs has been lost. And economists forecast unemployment will rise to 11.6 percent next year.

Hollande says the decline in French manufacturing — from 16 percent of gross domestic product in 1999 to 10.7 percent a decade later — is at the heart of his country's stagnation. Many European economies have seen a similar trend, but France's slide has been more pronounced than most. Reverse the decline, Hollande believes, and you reverse the stagnation.

"The goal of reindustrialization is a perfectly legitimate goal. The only question to ask for France is ... whether it's too late," says Elie Cohen, an economist at Sciences Po university in Paris. "It's probably too late."

Serge Lelard, who started a plastics company called Microplast in 1984, feels the same way. Montebourg, who buzzes around France touring businesses on a near-weekly basis, recently visited Microplast's factory outside Paris. He held it up as an example of the kind of small manufacturing businesses that France needs to keep and attract.

But Lelard is dismissive of the government's reindustrialization plan. He says there is too much talk and not enough action that addresses the competitive disadvantages French companies face in the global marketplace.

Microplast, which sells plastic bits that connect the wires in cars, has struggled along with the French auto industry. Lelard is pessimistic about the company's chances of survival.

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