The French President is finding it difficult to live up to the hopes of his voters, caught as he is in the middle of the euro crisis and flat growth
Lakshmi Mittal has decided to shut down the blast furnaces in the ArcelorMittal steel plant in Florange, north-eastern France, a region deeply hit by recession and de-industrialisation. With the automobile industry in the doldrums and a global recession in manufacturing, the demand for steel has nosedived, he says.
Probably the most disliked and certainly the least trusted man in France today, Lakshmi Mittal is the Chairman of ArcelorMittal, the world’s leading steel manufacturer. In 2006, Mr. Mittal, wrested control of Arcelor, a company that once had a strong French government stake and which, in 2006, had public holdings in Spain, Belgium and Luxemburg.
It was one of the nastiest takeover battles in recent times, not least because it was the first time an Indian, a person from the “under-developed south” was eyeing a first world plum. Dominique de Villepin, then Prime Minister of France, and Thierry Breton, his minister for Finance and Industry, engaged in some impressive sabre-rattling against “these Indians,” even though the French state had long since divested itself of its stake in Arcelor. Now, shades of that same xenophobia are resurfacing in France.
Symbol of worker malaise
On Thursday Mr. Mittal was called to the Élysée Palace for a dressing down by President François Hollande who told him he’d better look sharp and find a buyer rather than close down the plant as he has hinted he might do. “Restart the furnaces or put them up for sale,” Mr. Hollande reportedly told Mr. Mittal. The steel magnate reportedly said he would do so if a buyer showed up. But in these hard times that is not a serious possibility.
The fate of the blast furnaces at Florange has become a symbol of worker malaise in France and Lakshmi Mittal has inevitably become the villain of the piece. The number of jobs lost at Florange is unlikely to exceed 600. And yet, with 14,000 job losses and the shutting down of the Aulnay plant near Paris, Philippe Varin, the CEO of PSA Peugeot Citroen gets far less flack and union invective than Mittal, who is invariably described as a rapacious predator.
However, Peugeot and ArcelorMittal are not the only companies to announce job cutbacks. The former French President, Nicolas Sarkozy, had reportedly asked several businesses to delay their restructuring announcements to after the election and now there is an entire harvest of cutbacks including at business majors like Alcatel-Lucent, Air France or Sanofi. The bombast of Arnaud Montebourg, the new minister for Industrial Renewal, rings hollow when he declares that the French state will intervene to prevent massive job cuts in companies that continue to post profits. But in a liberal economy there is little the State can do and Mr. Hollande’s impotence in the face of investor logic is adding to the President’s unpopularity.
In terms of popularity ratings, François Hollande has little to envy Lakshmi Mittal. In five months his stock has touched rock bottom with a nostalgia wave for ousted President Sarkozy amongst centrist voters who plumped for Hollande last May. After having assured the French that he would “preserve” the country’s welfare model, Mr. Hollande has announced austerity measures totalling €30 billion. This is the most austere budget France has seen in the past 30 years and it aims to bring down the country’s deficit from 4.5 per cent of the Gross Domestic Product (GDP) to the acceptable three per cent by 2013 with a balancing of the books by 2017, when the next Presidential election is due.
Large companies will be taxed €10 billion, the government will cut spending by another 10 billion and wealthy households and capital gains will yield another 10 billion with a higher tax slab of 45 per cent of income for 6.2 million households. The super rich who earn over €1 million per year will see 75 per cent of their income going to the taxman. Capital gains will be taxed like ordinary income and various tax breaks will be removed, including a limit on wealth tax.
There has been a volley of criticism from the Opposition and from business leaders who say the new levies will prove a disincentive for investors or creative and talented people to work in France. A group of start-up businessmen calling themselves Genopi, an acronym of “pigeon” (French slang for victim or dupe) said the new capital gains tax will lead to the ruin of entrepreneurs wishing to sell off businesses or start new ones. They argued the measure would lead to a massive flight of capital and forced the government to take its first step back. Finance Minister Pierre Moscovoci hastily announced measures to pacify venture capitalists saying those who reinvest capital gains in new businesses will not be taxed.
As The New York Times put it: “Mr. Hollande’s problem is that in the middle of the euro crisis and flat growth, with pressure from Brussels and the markets, it is hard to live up to the hopes of his voters for the traditionally Socialist cure of higher public spending.”
In short, the President is caught in a cleft stick between pressure from workers asking that their benefits and jobs be preserved and pressure from Brussels which has declared a war on public deficits. Mr. Hollande has very little wiggle room and will have to walk a thin line between two totally contradictory sets of demands and expectations.