Saturday, 13 October 2012

And Then The Roof Fell In

No, I am not referring to Flanby’s taxes announced in his 2012 budget. Nor to the seismic effects in high places of the revelations of his paramour’s convoluted love life. This roof falling episode is more seriously symbolic of current events than those. Perhaps you can detect a faintly mocking tone? Yes, thanks to Flanby, (President Hollande, nicknamed Noah by me for the floods accompanying his election) the rich are moving out of France. Chief among these is Bernard Arnault, CEO of LVMH who says he’s taking Belgian nationality. Evidently Belgium is bright enough to keep its taxes low enough to attract top earners. Arnault, who built his company himself—by aggressive mergers, acquisitions and asset stripping-- and is the world’s 4th richest man and Europe’s richest, has also been knighted in London (as Knight Commander of the Most Excellent Order of the British Empire) for his services to the luxury goods industry in Britain where his company employs 3,000 people. Only three thousand employees to get a Knighthood? That’s really cheap! Come on you small business owners, get mobilized. You could be next.
But back in France the Captains of Industry are complaining. The current CEO of L’Oreal, the worlds biggest cosmetic company, says France will not be able to attract top talent to run its companies due to the tax of 75% on incomes over 1m€ per annum.  If the idea is that French top talent will migrate to other more lucrative locations would this government care? Certainly no foreign CEO would want to run a French company unless paid offshore. But does France want superannuated expatriates running its bigger companies? For decades L’Oreal was run by a Welshman, Owen Jones, who started at the bottom in Normandy as a traveling salesman for Dop shampoo.  He had to retire at 60, the French rule. That’s a lot more ridiculous than having to move to Belgium. But Arnault, already 63, does not have to retire. He owns the shop.
Perhaps the socialist Hollande doesn’t want powerful private companies with highly paid CEO’s who might start telling him what to do. He’d rather have state run companies like EDF or Areva whose CEO’s are paid less fancy salaries than is the rule globally for the private sector. Indeed, Flanby doesn’t like the private sector at all. Nor does he like the rich or even the middle classes.
Maybe I’m reading between the lines but did we expect anything better from Francois? These several months since he first had sight of France’s accounts, he has been sitting in the back room at the Elysee, working on his sums. He can’t cut unemployment benefit or civil service jobs without upsetting the unions and causing riots, but he can tax the very rich; always a popular move. They are few in number, although agile at guarding their fortunes from the taxman. But even if they make a great example of the President’s wish to show how much he is penalizing the better off, he is increasingly unpopular with the French public. From May to September Hollande’s support has declined 18%; 11% of that during September when the holiday mood wore off. When a friend who works at the Banque de France told me he’d seen the recent figures and was appalled, I simply nodded. Yup. And you can also tell the country is in recession from the number of boutiques that close, the fewer customers in my rather upmarket supermarket after office hours, the widespread public building works. And that brings me to the matter of the roof falling in. It’s all about public works in progress, and this is the reason:
French Government Bond Yield for 10 Year notes declined 3 basis points during August. From 1990 – 2012 the yield went from 10.7 per cent to a record low of 2.1 per cent in August 2012. Thus making it historically cheap for the French government to borrow: hence, the huge outbreak of publically funded works going on all over Paris.
It may be a case of Grabbit and Run, since the future looks less rosy, but, thanks to this cheap borrowing, the French government is digging up the roads, extending the tramway and the Metro, funding archeological digs in the Tuileries, repairing the external facades of the Louvre and rebuilding the ancient Palais de Tuileries. How much are they borrowing? I’d love to know the truth. Meanwhile, a long planned 120m€ restructuring of the Les Halles park and shopping centre in the very hub of central Paris is underway and this is why roof started falling down.
This roof in question is that of the Olympic size swimming pool I have used since the Ritz closed its doors (for a two year refurbishment). It’s a short trip away from my apartment on Daisy Belle 2. Alas, about one month ago I turned up for my swim and discovered it was closed indefinitely. It seems a large chunk of the concrete roof fell into the pool and everyone ran out screaming. Fortunately no one was hurt but it has not reopened and may not for months. The digging of huge holes for the rebuilding of Les Halles is the cause.
Who cares? This could be the biggest reconstruction period for Paris since Baron Haussmann swept away the rat ridden slums in the mid 19th Century. While the private sector starves; shops close or offer huge reductions, factories are shut down and mergers and acquisitions are stalled the government is spending like a drunken sailor. And the lenders may prefer lending a lot of funds at low interest when they know they’ll get it back on a programme of low inflation in a government dominated economy.
Forget the private sector, it’s not wanted on voyage. Nor is it even bankable compared to the Government of France.
So where am I swimming now?
In the Seine. Well not quite. I’m using a floating pool that filters river water, treats it with Ozone and minimal chlorine. A masterpiece of French technology, it works most of the time. And I get there, not on Daisy Belle 2, alas, but on the extremely efficient Line 14. It takes 6 minutes transit time between Avenue de l’Opera and Bercy. Another masterpiece of French engineering, it’s driverless so there are no strikes to interfere with traveling.
No private sector, no workers? Sounds like Paradise. As to who gets the profit from the higher taxes? Foreign buyers of French bonds.  Bi Bi Bernard Arnault. Sorry, I mean Sir Bernard Arnault. La France doesn’t need you, your money or your jobs. She’s borrowing in a market place that is frankly desperate to find a good bet, even if the rates are bargain basement low.