In early December, Christophe de Margerie, CEO of Total, the Exxon à la Française, shocked the French when he said that there was "no doubt" that a liter of gasoline would reach €2 and that the only question was when. He cited the calamities in the news at the time to justify the skyrocketing prices of oil and gasoline—source of Total’s mega profits. He was talking his book, obviously, which isn't illegal, not even in France.
And now, €2-per-liter gasoline has arrived! More precisely, it has arrived at a gas station in the Rue Saint-Antoine in Paris, not far from the Bastille, in the 4th arrondissement. I used to walk by it every day an eternity ago when I lived in “le Marais” as the arrondissement is called. It’s a tiny gas station with rip-off prices by a parking garage entrance. And now it had the audacity to be the first in France to charge €2.02 per liter. $10 a gallon.
It was reported on Carbeo.com, a site that tracks gas prices across France, and then made the national news, though it must have done little to bring business to the station. The national average, which has been hitting all-time highs since late last year, was €1.62 ($8 per gallon) as of last week, also a record, according to the Ministry of Sustainable Development—they have a ministry for everything in France.
Fuel is taxed heavily in France (and in Europe), which explains part of the difference in price to the US. But now there is an additional reason. In 2008, when gasoline in the US hit all-time highs, the euro was strong against the dollar, and since oil is priced in dollars, Europeans got a sweet deal, or at least they didn’t feel the pain as much. But the weaker euro has changed the scenario, and record gas prices have been washing over the Eurozone for months.
The tab is rising. France paid a record €61.4 billion in 2011 for its energy needs, an increase of 32% over prior year. It amounts to 3.1% of GDP, up from 2.5% in 2010. Most of that increase is due to the rising price of oil as measured in euros. Electricity—the 59 nuclear power plants of mostly state-owned EDF generate 78% of the country’s power—played only a small role.
Consumers, who have to absorb the majority of the oil price shock, are reeling. And they might kick France into a recession. Even Mario Draghi, president of the ECB admitted it when he said that it could heat up inflation—after graciously handing a trillion euros to his banker cronies since he came to power in November last year. The goal of these “Long Term Refinancing Operations” was to drive up the value of sovereign bonds of debt sinner countries in the Eurozone. But it seems to be hitting oil as well.
So, as in the US, the price of fuel has become a hot item in the presidential election. Socialist François Hollande, still the frontrunner, trotted out the idea of capping fuel prices, which President Nicolas Sarkozy, in his deadpan manner, called a “joke.” But Hollande has other ideas as well. Most intriguingly, he offered his compatriots a new 75% income tax bracket aimed at the chieftains of the largest corporations and banks. Instant revolt. Not among his targets, but in the world of soccer, the people’s sport. For how this has mushroomed into a calamity for Hollande, read.... Killing a 75% Income Tax.
Sarkozy has his own demons to fight. Five years ago, he ran on a platform of reforming the economy. One of the planks was the relaxation of the 35-hour workweek. “Work more to earn more" was his slogan. But since then, nagging voices have turned it into "work more to earn less" and now "work more to fill up your tank”—which may cost over €100 ($130) even for a smallish tank.
And then France woke up to the news—quelle horreur—that Sarkozy, their presumed loser, was suddenly ahead in the polls. Amid all this chaos, two fundamental cross currents in the French economy went practically unnoticed, though they should have caused an outburst of national soul searching. Read.... Plot Twist While French Businesses Are Dying.