French dis-connection

It has been a bad week for France. The downgrading of its debt by Moody's ratings agency led to a further downgrade Friday of the eurozone's two bailout funds. As the second-largest contributor to the rescue funds, this means France is becoming part of the euro's problem, rather than part of a solution. Then the government of President Francois Hollande found itself in an unwinnable spat with ArcelorMittal, the giant steelmaker which is losing money at the rate of $200 million a year. Over-capacity in Europe is the main cause of the losses but the French government last week made some blustering threats of nationalization rather than permit ArcelorMittal to lay off French workers. An attempt to calm the row led French labor unions to accuse their government of betrayal, which French business leaders interpreted the threats of nationalization as yet further proof that the governments doesn't understand the realities of the global economy. This should have been fertile ground for the conservative opposition, the Union for a Popular Movement, but UMP members are distracted by a vicious internecine battle between the two men who seek to be heirs to the defeated President Nicolas Sarkozy. Francois Fillon, the former prime minister, was initially said to have been narrowly defeated by fewer than a hundred votes among 300,000 members in an internal party election for the new leader by Jean-Francois Cope, head of the party machine. It then emerged that the votes of France's overseas territories hadn't been counted and their votes would have made Fillon the winner. Amid accusations of fraud and ballot-stuffing, a swift recount found that Cope had won by almost 1,000 votes. This new result swiftly denounced by Fillon, who is threatening to take his supporters in the National Assembly into a separate party. This would cripple the remaining rump of the UMP, which would lose close to half its state funding. Cope and Fillon cannot stand one another and they also represent different wings of the party. Fillon is relatively moderate, a classic center-right politician. Cope is from the populist right, publishing last month "A Manifesto for an Uninhibited Right", which asserted that immigrant gangs in the grim suburbs of public housing were responsible for "anti-white racism." Disgusted by the in-fighting and the appalled public reaction, Sarkozy has suggested that both Cope and Fillon be disqualified from leading the party if they cannot reach an accord this week for a new election. Sarkozy, who is widely reckoned to be planning a political comeback on the presidential elections of 2017, needs his UMP party to be strong and united. The latest development is that Cope's close ally, American-born former Education Minister Luc Chatel, Sunday joined Sarkozy's call for a new election. Significantly, he warned that a split among the conservative ranks would simply open the way for the far-right anti-immigrant party, the Front National, to take over the leadership of the opposition to Hollande's socialists. The bizarre feature of this is that the socialist government should be in trouble, with foreign investment dropping, wealthy industrialists leaving the country to protest the new 75 percent top tax rate, and unemployment reaching a 14-year high. But the socialists are sitting back in delight as the conservatives tear themselves apart. Meanwhile France's neighbors in Europe are fretting that France is playing petty politics while its economy slumps, after last year's record $70 billion trade deficit. "The biggest problem in the euro zone is no longer Greece, Spain or Italy, it is France, because it has not undertaken anything in order to truly re-establish its competitiveness, and is even heading in the opposite direction," warned Professor Lars Feld, a member of the German government's board of economic experts and director of the Walter Eucken Institute in Freiburg. The downgrading of the eurozone's rescue fund, as a result of the downgrading of France, has sent warning signs across Europe. Mario Draghi, head of the European Central Bank, said Friday in Paris that the downgrade was a "signal to be taken seriously." The French reaction was to shoot the messenger, with new threats against the inconvenient ratings agencies from Michel Barnier, a Frenchman who is the current EU commissioner for financial services. "Credit rating agencies will have to be more transparent when rating sovereign states, respect timing rules on sovereign ratings and justify the timing of publication of unsolicited ratings of sovereign debt," Barnier said in a formal statement. "They will have to follow stricter rules which will make them more accountable for mistakes in case of negligence or intent." And now the European Union has warned that France is likely to overshoot next year's budget deficit target yet again, and overshoot that could climb even higher if the latest threats of nationalizing ArcelorMittal's steel plant. And now the unions of the struggling Chantiers de l'Atlantique ship-building industry are demanding that they be nationalized, too.