French News in English 

Published by France Now Association

Editor: Arvind Ashta

Editorial Committee:

W. W. Strangmeyer,

Emmanuelle Ashta




(French news in English)

November 1998, Monthly, Issue No. 19

(Only highlighted issues available for on-line consultation)

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European Fiscal Federalism

Of the ECU 90 billion (FF 594 billion) expenses of the EU, about 17.6% is financed by France ( ECU 16 billion or FF 105 billion). Most of this budget is spent on the Common Agricultural policy (ECU 43 billion) and Structural Operations (ECU 33 billion). Till 1995, the UK and France were the major net contributors to the system, Germany was a marginal contributor and the others were mainly recipients. Since then, however, the Dutch and the Germans also have become major contributors. France is a recipient under the Common Agricultural Policy. Some French zones also receive aid under the Structural operations criteria. Of course, the gains from the subsidies do not get evenly distributed to all the farmers. It is estimated that 20% of the farmers manage to obtain 80% of the European subsidies. But this is another subject.

All this was done to ensure adhesion to the Common Market. Because a few industrialists, mainly large ones, would get access to a larger market. Because federal laws would be voted which would level the playing field for many industries across erstwhile national borders. Because the risk of doing business with unknown laws of other countries would disappear. For it is not only the customs tariff wall which impedes the flow of goods and capital into a country - it is also the inability to master a second legal system which is not structured to the advantage of those invading with their goods or their machines to conquer new markets for themselves.

Now the Dutch and the Germans would like to stop paying so much. Why is there a threat that the payments might be stopped? If the payments to France, for example, are being stopped, does it mean that the French market is no longer important or does it mean that the French market is already conquered? A little bit of both and a little of something else.

First, while the absolute importance of the French market remains the same (with such a low population growth), the relative importance is lessening because there are three new members and more willing to join. So, losing the French market (if France secedes from the Union) will be less important.

Second, the market is to some extent conquered because the risk of France leaving the Union has diminished. With countries less competitive than France joining the Union, there will be opportunities for competitive French industries (telecommunications, armaments, nuclear) to exploit new markets if France remains in the Union. And the cost of losing out on this larger internal market will be more for France.

Third, the Dutch and the Germans have to pay for the new members and for inciting others to join. They do not want to increase their total payments. So, they would like to redistribute from the ones they are sure to retain (like France) to ones they have just acquired or want to acquire. Hence all the noise.

European Investment Bank - the monetary glue

During 1997, France received Ecu 2.7 billion (about FF 18 billion) of loans from The European Investment Bank (EIB). This makes it the fourth recipient, after the UK, Germany and Italy. Of this, FF 11 billion were for projects situated in regions requiring industrial conversion. Most of the loans were to big enterprises, but 7,400 small and medium enterprises did obtain FF 2.7 billion. This gives an average of FF 350,000 per small or medium French enterprise.

The EIB was created in 1958 to sustain a balanced development and the economic cohesion of the member-States. In addition to the fiscal glue, this is a financial glue ensuring that all regions prosper from the Union. This bank collects borrowings (or deposits) of Ecu 25 billion (about FF 160 billion) per year.

Over the last five years, about Ecu 64 billion have helped finance investments of Ecu 160 billion in less developed regions of the European union. Most of this has been given to large public and private enterprises. But Ecu 10.7 billion has been distributed to 47,000 small and medium enterprises through 130 European banks. This gives an average of Ecu 225,000 (about FF 1.5 million) per small or medium European enterprise, considerably more than that obtained by average French counterparts. It also gives an average of Ecu 82 million (about FF 535 million) distributed through each bank.

During this period, about Ecu 46 billion of financing is directed towards infrastructure financing: Scandinavian straits, TGV trains, aviation control, electricity and gas inter-connections, etc.). Another reclassification indicates that environmental projects (water treatment, air, waste treatment, urban reorganisation) have received Ecu 28 billion.

The EIB also lends to the third world to promote European influence. The aid is directed, in order of priority, to the African-Caribbean-Pacific regions, the Mediterranean countries, Eastern Europe and, finally, Asia and Latin America.

European federalism and the COB

The Commission des Opérations de Bourse (COB) ensures the protection of small investors, adapts regulations for issuing capital to the evolution of the market, improves the quality of information available to the market, ensures fair market practices, and co-operates with European and international agencies regulating savings and investments.

In 1997, it oversaw 288 portfolio management agencies who managed more than 1500 SICAV and other mutual investment funds. It also supervised another thousand organisations managing investments on behalf of their clients. On receipt of 733 complaints, it opened 82 enquiries. Of these, it transmitted 24 to the civil courts and 10 to its own administration. It pronounced penalties in two cases.

At the European level, there is now a Forum of European Securities Commissions (FESCO). For this forum, the COB co-operates with other regulators of the European Union and furnishes information requested.

The future of the COB is likely to be as dynamic as the market. With European federalism as well as globalisation, companies are able to choose the place where they want to issue shares. Among other things, they look at the Stock Exchange with the minimum of regulations. To compete in such an environment, the COB needs to speed and simplify its approval systems. The flip side is that protection of investors may then suffer. Of course, investors may prefer to invest with companies issuing shares in Exchanges where the police function is strong. A delicate compromise has therefore to be made. Big Brother will let you get on with it but he is watching you very closely.

The Politics of Illusions: The Students' Movement

A hundred thousand high school students demonstrated. They are being trained to participate in the national dance: in October, November and December, someone has to demonstrate. The truck drivers last year, the unemployed in the beginning of this year. The students are not the only ones this year. The suburban train drivers want a police escort because adolescents come and bash them up. The retired demonstrated because their pensions are inadequate. But the reasons for the students' demonstrations are particularly illusory.

National Budget for 1999 compared with 1998
1998 1999
Total government personnel 241249 2207970
School Education 941249 941249
Higher Education 126766 127381
Research & Technology 312 312

Total Budget Expenses in FF millions

Total government expenses 1586669 1669205
School Education 285934 297744
Higher Education 48459 51114
Research & Technology 39613 40008
Expense per employee in Francs
Total government expenses 707940 755991
School Education 303781 316329
Higher Education 382271 401269
Research & Technology 126964744 128230769

From the above table it is clear that half the public sector manpower is in education. However, education represents only 21% to 23% of the government budget depending on whether we include the budget of R& D or not. In fact, the graphs alongside indicate that government employment is reducing since its peak in 1990. However, employment in the educational sector is still not matching this reduction.

All this education to understand why they will be unemployed, that machines may replace men. All this money being spent so that teachers have the pleasure of having students to teach. Teachers who are unable or unwilling to set up their own private schools: little asharams in forgotten parts of the country. And if machines are replacing men in production of goods and services, why is education still required? Do we need to pay such high taxes to educate our kids to learn things which they do not always enjoy learning? This is perhaps the main reason for students to want to live a better life with reduced academic hours. Twenty-six instead of thirty hours a week. It is also a good reason for businesses to demand that education levels be reduced so that taxes flatten out. Besides which, less educated workers may ask less stimulating questions. And this may also solve the problem of the thirty-five hour week for the teachers. If the rest of the country is working thirty-five hours instead of thirty-nine, the teachers would also like to reduce from eighteen to sixteen. And this requires either more teachers for students or less education for the students. It is evident that the students are told to ask for lighter burdens. This seems the only plausible explanation for the strike.

While the Assembly voted in his budget, the following interim measures are proposed by Claude Allègre as sops to the students:

1. 3000 Supervisors, 1000 on call and 10000 youth jobs will be appointed.

2. A four billion Franc fund is created for giving loans at zero interest rate to regions for improving school facilities.

3. Reducing the work-load of the students and reducing the number of hours of studies per week.

4. Ensuring that from next fall no high-school class has more than 35 students.

5. Creation of a School Council in which students are represented, support for their press and ensuring that students' rights are clearly published in a Charter in every High School.

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