Interview with Jean-Paul Betbèze: « Young people are paying for the weaknesses of the French economy »

Jean-Paul Betbèze is Director of Betbèze Conseil SAS, a member of the French Economic Commission, the Cercle des économistes, and the Scientific Committee of the Robert Schumann Foundation. He has also been Chief Economist, Director of Economic Studies and member of the Executive Committee of Crédit Agricole SA, University Professor (Agrégation, Paris Panthéon-Assas) and member of the Economic Analysis Council to the Prime Minister.

Jean-Paul Betbèze responds to BS Initiative on the latest economic and financial events.

Does the Fed’s plan to gradually reduce its purchases of Treasury bonds pose a risk to the ECB’s upcoming actions in terms of interest rates?

First, it is important to understand that the Fed no longer has a choice: it must stop intervening in US long-term rates (manipulating them?), and therefore stop lowering « one » of the two global risk-free rates. This increase has an impact on the « other » global risk-free rate: the German rate. The ECB is therefore seeing its entire range of long-term rates rise, starting with the lowest German rates. This is pushing countries to implement more reforms and consolidate the banking union. In itself, this does not push the ECB to lower its short-term rates, because the main problem is actually the transition from the ECB’s short-term rates to the credit rates for SMEs in southern countries such as Italy and Spain, which are not really falling. This therefore requires reforms in these two countries and stronger banking consolidation. The only scenario in which the ECB would have to lower its rates would be if the rise in US rates caused economic activity in the eurozone to plummet. But, once again, this would not solve the main problem: bank lending to SMEs.

In a recent article, you stated that foreign investors have more confidence in the eurozone than Europeans themselves. What kind of confidence boost would you recommend at the European level?

A « simplification shock, » as we say here, in other words, a responsibility shock! The eurozone is complicated, and becoming increasingly so. Its room for maneuver and agility are shrinking, even though it needs to be simpler and more responsive in times of crisis! Next, we need to show that decisions are actually being implemented: the European Semester, banking supervision, banking union—in other words, that the zone is doing what it says it will do. From within the eurozone, it’s not very clear what’s going on… so from further away…

France’s 10-year interest rate rose dramatically in June (from 1.7% to 2.4%) following the Fed’s announcements. Is this rise in rates likely to destabilize France’s bond issuance program for 2013 and could it thwart the French government’s structural deficit target (3.7% of GDP in 2013)?

The rise in French rates is of American origin. The only question, therefore, is whether there will be a widening of the spread with Germany in France: this is decisive for the framing of public spending. This is why President Hollande no longer talks about « reducing the deficit-to-GDP ratio » but rather about « cutting public spending. » The eurozone is demanding it, the markets are demanding it, and everyone (or almost everyone) in France is convinced of it. The messages from the Court of Auditors are paving the way. It is this approach, continued over time, that will stabilize expectations, which are currently in a state of turmoil.

Youth unemployment remains a serious concern in France at present, with 26.5% of young people actively seeking work. What could France do to make it easier for young people to find their first job?

The first thing to say is a truth. The minimum wage is the same for everyone, but it is high for young people with little or no training, especially in this period of crisis when jobs are plentiful. Hence these apprenticeship or subsidy schemes, which implicitly lead to a « youth minimum wage. » The second thing, precisely to reduce the productivity gap, is to provide better job training, to provide more bridges, more exchanges between the training period and the employment period. This often means reviewing training programs and establishing closer relationships with businesses. Finally, there are job offers that cannot be filled, particularly in the skilled trades and personal services. These professions need to be better known and better understood, otherwise the gap between training and demand will only grow. Youth unemployment is partly a question of wages, but it is mainly a question of preparation, knowledge, and exchange between the world of education and the world of business, between the world of pre-employment and the world of work. Ultimately, this proves that we are not talking enough about the world as it is and as it is becoming, and that we are not training young people enough. They are the ones who pay for our weakness.