Bloomberg News

Down, Not Out, in Paris as Crisis Whittles Away Welfare State

February 14, 2012

Feb. 8 (Bloomberg) -- The 375-year-old state-owned pawnbroker on Rue des Francs-Bourgeois in Paris’s central Marais district has rarely done brisker business.

On a crisp, cold day last month, Inaya, an unemployed former Ikea manager, waited with about 100 people in a large, dingy hall at Credit Municipal de Paris to pawn a Gucci bag and some jewelry. Out of work for two years, Inaya, 35, sporting a tweed jacket and dark pants, was tapping the broker for cash for the first time as her unemployment benefits dwindled.

“There’s no work out there,” she said, declining to give her last name. “It’s hard to get out of this crisis.”

Europe’s more than two-year-old sovereign debt crisis and the economic slump it has brought have driven 30 percent more people to the Paris pawnbroker and swelling numbers of the poor to charities such as Les Restaurants du Coeur. They lay bare the limits of France’s welfare state which, at about 31 percent of gross domestic product, is the world’s most generous and has more than 136 billion euros ($178 billion) of debt.

“The structure of the French welfare state is such that you don’t see acute poverty, but the model has reached its limit,” said Philippe Chalmin, a professor at Universite Paris Dauphine. “It’s clear France will have to invent a new model.”

With public debt of 1.69 trillion euros, or 85 percent of GDP, France is too hamstrung for expansionary policies to ride out the slump. Its government spending is among the world’s highest at about 56 percent of GDP, compared with 47 percent in Germany, Eurostat figures show. France lost its AAA rating last month at Standard & Poor’s for the first time.

‘Debt Drug’

“There comes a point when you can’t spend more than you earn,” said Fabrice Seiman, chief executive officer of Lutetia Capital, which oversees more than $100 million in Paris. “It’s as true for states as it is for corporates and for people. We’re paying for 30 years of public finance irresponsibility.”

While the economic situation in France is less dire than in Spain, with its 23 percent unemployment rate, and in cash- strapped Greece, the crisis is forcing it to rethink its public service model.

France’s welfare system -- supporting the sick, the elderly and people out of work, family allowances, worker disability payments and pensions -- will record a 19.9 billion-euro deficit in 2012, according to Didier Migaud, head of state auditor Cour des Comptes.

“The spiral of welfare debt has turned into a drug,” Migaud said in September, presenting his report for 2010.

Election Topic

President Nicolas Sarkozy, who faces elections in fewer than three months, is seeking to cut the state budget by about 30 billion euros this year and next. He has raised the retirement age to 62 from 60, capped healthcare payments and limited welfare payout increases.

Sarkozy trails Socialist candidate Francois Hollande in the two-round elections on April 22 and on May 6. Hollande has the support of 34 percent in the first round, 8 points ahead of Sarkozy, according to a BVA poll on Feb. 6. Hollande wants to create 60,000 public-sector teaching jobs and bring the retirement age for some people back to 60.

Efforts to take away any of the welfare benefits will provoke protests and bring people to the streets, Chalmin said.

“Reforming France is exceedingly difficult,” he said. “French people are very much accustomed to direct intervention by the state. First, you have to change French minds.”

Neighboring U.K. is also seeking to cut welfare spending to narrow its budget gap, an effort that has drawn opposition from some lawmakers as legislation makes its way through Parliament.

Fraying Fabric

Making it harder for France’s welfare reform are forecasts by the national statistics office Insee that suggest the country is in a recession. France’s unemployment rate is close to 10 percent, with jobless claims at the highest in 12 years.

A walk down central Paris’s streets with their packed restaurants and stores belies the country’s pain. Also, France’s gross savings rate of about 16 percent of household income -- almost three times the U.K.’s, according to figures from the Paris-based Organization for Economic Cooperation and Development -- gives many French people a cushion to ride out the rough patch.

Still, evidence that the social fabric is fraying, at least at the edges, is hard to miss.

In the light winter drizzle of a recent evening, about 100 people lined up in an alleyway near the metro station Chevaleret in the 13th arrondissement of Paris for a hot meal from the charity Aurore. The numbers have steadily risen in the past year, a worker for the charity said, declining to be named.

Middle Class

At Restos du Coeur, an aid organization that distributes free groceries to the poor, women carrying children with runny noses and old men with walking sticks stood patiently in line on a recent afternoon, waiting for their supplies of vegetables, milk, fruits and eggs.

“The numbers have risen at least 10 percent at my center” said Jeanine Teboul, head of the operation in Paris’s 18th arrondissement. “Many are retired people who can’t make ends meet anymore, many have just lost their jobs.”

Even the French middle class hasn’t been spared.

Marie, the owner of an 18-year-old custom-tailoring business in the French capital’s chic 16th arrondissement, made her way last month to Credit Municipal de Paris to pawn a ring. The 38-year-old, who declined to give her last name, said she had never pawned anything before.

“My client list just dried up and I fired my lone employee after several of my customers’ checks bounced,” said Marie, who counts Patricia Loison, a newscaster on TV channel France 3, among her clients. “It’s clear the crisis is hurting everyone, not just the poor. I’ve never seen anything like it.”

‘Crisis Indicator’

Credit Municipal de Paris spokeswoman Olivia Stauffer said the number of people turning up at the pawnbroker’s doors has risen to 658 a day now from 508 in 2010.

“People have more and more difficulty recovering the objects they pawn,” she said. “We are a crisis indicator.”

The story is similar in the French countryside, where people like Vinciennes Lauberny, a single mother who lives with her six-year-old daughter, are struggling to make a living.

Lauberny worked at EuroDisney in Paris in the mid-1990s before moving to Martiel in southern France, where she does odd jobs, waitressing or working as a supermarket cashier. She found work stuffing foie gras into cans in the nearby town of Figeac some months ago, abandoning it because she couldn’t afford the gas bill for the 30-kilometer (19 miles) ride each way.

“People talk about the crisis in 2008 but to my mind, it’s really now that things are going down the drain,” said Lauberny. “If I make less than 1,500 euros a month net, I really can’t make ends meet.”

She’ll be 40 soon and wants to emigrate to Quebec. “I’d love to move to Canada,” she said.

Not everyone is quitting town quite yet. The former Ikea manager Inaya says she’s keeping her spirits up.

“There’s much that’s right about France,” she said. “There are places that are much worse than here. We French we like to live well, but we can pull back just as easily.”

--With assistance from Andrea Rothman in Toulouse. Editors: Steve Rhinds, Stephen Foxwell

To contact the reporter on this story: Vidya Root at in Paris at vroot@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at Foxwell at sfoxwell@bloomberg.net


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