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Page last updated at 00:12 GMT, Friday, 26 September 2008 01:12 UK

French hold out against credit crunch

Unlike Britain, the US and many other countries, France appears to be weathering the credit crunch storm in reasonable shape.

The BBC's Emma Jane Kirby asks if other nations should take a leaf out of the thrifty Gallic book?

Shoppers in Paris
In France, it is very difficult to spend money you do not have

If I had to use one word to describe France's financial system, the word I would choose would be "cautious".

French banks are immensely careful about whom they lend money to and, to limit risks, they spread their investments much more widely than those in the US or UK.

Only about a quarter of banking activity is related to investment banking and dealer-broker activity - the rest is all to do with retail banking.

This meant when the credit crunch bit, the French banks were hit a lot less hard than those in many other countries.

But it is not just about banking investments - this country as a whole simply takes far fewer risks.

In London... it was as if wealth was something you could get from a bank, it's a sort of miracle people seem to believe in England
Francois Artignan, banker

Take the level of household debt. In France, it is at 47% of GDP, while in the UK it is well over twice that.

It's not that temptation does not exist in France - the lure of consumerism is just as strong as it is elsewhere.

But it is very difficult to spend money you do not have in France.

French credit cards are little more than debit cards, so there is no question of simply sticking a couple of flat screen TVs on your credit card and hoping to pay for them later - if there are insufficient funds in your account, your bank will immediately block the transaction.

In the wealthy suburb of St Germain-en-Laye, just outside Paris, I met Francois Artignan, a well-to-do banker who moved back to France two years ago after a long stint of living in the UK.

Francois Artignan dines with family
Mr Artignan was 43 when he bought his first house in France

Francois admits he misses the buzz of London living but says he was alarmed by the way so many British people lived on their credit cards and never saved money.

"It's true that you can note a big difference in consuming behaviours between the French and the English," Mr Artignan says.

"People here don't believe you can just put your debts together and get them refinanced... But in London... it was as if wealth was something you could get from a bank, it's a sort of miracle people seem to believe in England.

"It seems to me people there are very keen to use up all the money they have, and that's a worry when you wonder how people are going to have money for retirement for instance," Mr Artignan says.

Sluggish growth

From his Paris office, the chief economist for market analyst Xerfi, Alexander Law, has been comparing the spending patterns of France and Britain.

A woman looks at a real estate ads in Paris
A loan for a mortgage is impossible without a big deposit

Mr Law, who has dual nationality, believes that innate French prudence has saved it from disaster.

"Generally in France you spend what you have and not more," he explains.

"In the US and the UK, the economy has been driven by household spending, consumption has been driven by credit, and a lot less in France, so that's why when there were periods of expansion France grew a lot more slowly than the UK and the US but conversely when it's slowing down, it will slow down in a more moderate fashion than the UK or the US."

France's rate of growth is horribly sluggish - this year it looks set to hover around just 1%, meaning its likely to be way off target for meeting its promise to the EU to bring its budget deficit back under control by 2012.

But although its slow economy is hardly the envy of the world, its reluctance to tie its economy into the housing market in the same way the US did has also meant that when the American sub-prime market collapsed, it did not drag the French market with it.

There are far fewer household owners here than in the UK - about 57% of French people are on the property ladder, compared to 70% in the UK.

Although a high earner, Mr Artignan was 43 before buying his first home because in France, unless you have a big deposit, you can forget begging the banks for a huge loan.

Two conditions

President Nicolas Sarkozy is trying to push France into becoming a nation of house owners by building thousands of cheap new homes.

A cheap new house being built
Thousands of new cheap houses are being built across France

But France still believes in strict rules and regulations, Finance Minister Christine Lagarde says.

"Expect two conditions - a down payment of 20% of the value of the house plus mortgage [repayments] which will not exceed 30% of income.

"You already have a pretty good safety net there and clearly no real estate financing similar to the sub-prime market that has existed in the US and which has hurt the financial system so much," Ms Lagarde says.

France has long been feeling the pinch of the global rise in food and fuel prices and many people here complain that their spending power is falling fast.

In France, 46% of people chose to stay home for their summer holiday this year rather than splashing out on an expensive break away, and so many people are cutting back on dining out that some 3,000 cafes and restaurants went out of business in the first three months of this year.

Finance Minister Christine Lagarde
Ms Lagarde says many people are living in the "world of fantasy"

Sparse spending means sparse growth - but should other countries take a leaf out of the parsimonious Gallic book?

"I'm not suggesting that we have the basic principles right, I'm not suggesting that we can teach the world lessons," Ms Lagarde says.

"But I think it will be for each and every category of players, traders, regulators, supervisors, to examine what they have done, what they should have done and what they should be doing in the future to bring a bit more morality into the system.

"I think we have let this world of fantasy and virtuality overcome reality... There have to be more principles, more discipline and a bit more reality," the minister says.



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