To Fulfill New Year’s Wishes, France Needs to Boost Revenues

Whilst peripheral countries seem to revive with Spain and Italy disappearing from the red zone’s list, France is being the victim of press articles, editorials and analysis calling it “the sick man of Europe”. As we reported, one may even think the country is even being the victim of a bashing campaign. French economy’s illness’ severity still remains to be seen, but last week President François Hollande announced €50bn additional budgetary cuts for 2015-2017, which represent 4% of government expenses. Additional reductions mean that Mr Hollande already presented the tightest budget in long France’s history in September with cuts amounting €15bn .

Barclays’ analysts recently commented on “France’s perceived inability to reform and overcome structural challenge, as well as on “worrying country’s loss of export market share”.

French president did not hide these talks about France at the press conference where he announced the bulky cuts and stated that “ France must recover its economic strength”. He also recognised the “downward spiral” of the country’s economic policies in last times and committed to measures based on “structural reforms” and “ a redefinition of state’s goals” .

Hollande assured as well that the “redefinition” would follow Scandinavian model’s countries,  of course protecting the social welfare.  Alongside this adjustment plan,  France’s president announced the most relevant social pact in the Hexagone’s history , the so-called “responsibility pact”. According to this big agreement, national companies and self- employed workers could be relieved € 30,000 million in taxes by year 2017. “It is based on a simple principle: lower labour charges and fewer restrictions on their activity in return for more hires and more dialogue with trade unions,” Hollande said.

Given all those new year proposals, it is obvious that the country will urgently need to increase revenues. The sale of state-owned companies stakes could be just one of the solutions to the problem. French government is already preparing the sale of 1% Airbus, the pan- European aerospace consortium, in which France is the main shareholder with a 14.31% stake, followed by Germany with a 10.7%. Furthermore, the company is based in Blagnac, a suburb of Toulouse. One per cent may not be a significant stake although if it is Airbus’ the question could change. Airbus is a treasure for the European industry joining forces also of Great Britain and Spain. The company produces approximately half of the world’s jet airlines against the US giant Boeing.

The sale will be carried out via an accelerated placement process to institutional investors, yet there is not an specific deadline for the operation. Experts at Bankinter believe “Airbus has a maximum of 11% restriction voting rights, so that France would presumably continue to disinvest gradually an additional 2.3% stake until reaching that level. They would do it this way to avoid some stake this size could be transferred to other relevant shareholder.”

“Since the start of the Euro, growth in French exports has consistently failed to keep up with exports growth. Currently, exports are concentrated in a small number of sectors, mostly where price sensitivity is low because of a strong high-tech content.Airbus and tourism are examples of export success stories”, Barclays has remarked.

The new international appetite for Spanish banks or the possible selling of a rescued Bankia’ stake might illustrate the recovery start at peripheral countries. It seems not to be the case of France, which begins now its reorganisation. Cuts and Airbus could prove it.