French unemployment rises to 10 per cent

Financial Times ^

[Alex Marko]

French unemployment reached its highest level for five years in January, breaking through the symbolically important barrier of 10 per cent and dealing a further blow to the credibility of the government of Jean-Pierre Raffarin, prime minister.

The surprise rise in unemployment came at an awkward time for Hervé Gaymard, finance minister, who resigned on Friday over his government-funded €14,000 (£9,700) a month luxury apartment.

Insee, the government statistics office, said France gained an extra 23,000 jobless people in January, taking the total to 2.716m. The unemployment rate rose from 9.9 to 10 per cent, well above the eurozone average of 8.9 per cent.

The disappointing employment figures cast doubt over Mr Raffarin's vow to cut the jobless rate to 9 per cent by the end of this year. He set the target in his "Contract for 2005" in December, designed to give fresh impetus to his increasingly unpopular government.

Economists said it was the first time France’s unemployment rate had hit double figures since 2000. Nicolas Sobczak, an economist at Goldman Sachs, said it would make it “virtually impossible” for Mr Raffarin to cut unemployment to 9 per cent this year.

Bad news for the French economy was compounded by disappointing figures on French business confidence, mirroring similar falls in the mood of German and Italian companies. Insee’s measure of confidence in French manufacturing industry fell from 105 to 104.

Mr Sobczak said the new figures raised doubts over how sustainable was the recent recovery in the French economy, driven by fast-growing consumer spending.

The disappointing economic news is a blow for Mr Raffarin, who already faces growing public resentment over unpopular reforms to the 35-hour week, an ambitious privatisation programme, and a hotly contested education bill.

Mr Raffarin was counting on a €12.7bn five-year reform programme, under the banner of “social cohesion”, to boost employment. But Jean-Louis Borloo, head of the social cohesion super-ministry, said this week the benefits of the plan would not start until the second half of the year.

The French economy easily outpaced the eurozone region as a whole at the end of 2004. A 0.7 per cent rise in French gross domestic product in the fourth quarter - about the same pace as the US - compared with falls of 0.2 per cent in Germany and 0.3 per cent in Italy.

However, economists fear this could soon be undermined by high unemployment, which could dent consumer confidence and persuade households to spend less and save more.

“If you really look at the business confidence, it has remained in a tunnel and not been pointing to a sustainable recovery,” said Mr Sobczak. “The priority of most French businesses is to improve productivity not to create jobs or start new investments.”

The strength of the euro against the dollar and high commodity prices, such as oil and steel, were putting pressure on French companies to “keep a tight control on costs and stay tough in negotiations with unions over salaries”, according to Mr Sobczak.

He said the boom in consumer spending could also run out of steam. Although the savings ratio – the proportion of household incomes invested in savings – had fallen from 16.7 to about 14.7 in the last three years, he questioned whether this could fall much lower.

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Your wish has been granted.

France Telecom CEO Thierry Breton has been named French finance minister.

This was the guy who put France Telecom $75 Billion in debt, and then begged the French taxpayers to bail them out.

With Breton's firm hand on the tiller things are definately going to change. I believe it is called a death spiral.