12 October 2004 Blog Home : October 2004 : Permalink
A piece by Daniel Drezner sparked by the arrival of the 40 year mortgage, leads me to consider briefly the differences of home-ownership and mortgages in different countries. It was sparked by a reflection that in France I was unable to obtain anything more than a 15-year mortgage for my house and was limited by law to a mortgage whose repayment was a third of my gross monthly income. At first sight the French system seems much better than the US (or UK) ones where mortgages are frequently 30 years duration and where there is no particular limit to the amount borrowed other than the willingness of the borrower to pay the monthly repayments and the lender to judge the risk that the borrower default.
I am certainly not alone in noting that loans backed by the security of ones home is a classic way for entrepreneurs and small businesses to raise the working capital they need to get started. And, as I noted on Friday, passing on one's home to one's children is an extremely common artifact of modern widespread property ownership and provides a significant resource for one's children (or grand-children) to use to finance their educaton or business. In France the ability to do this is extremely limited by the restrictions noted above. For example due to the limitation on the repayment amount I was forced to put considerably more down-payment into the house we own here than otherwise [ironically this was in my case probably a good thing since the money invested in the house in 1999 was therefore unable to be invested in the stockmarket in 1999]. Similarly the short term of the loan means that the monthly repayments are consequently higher further reducing the total amount that can be borrowed.
It may be a joke that "French has no word for Enrepreneur" but it is a joke with a basis in truth. The French are remarkably bad at founding growing businesses. There are countless small businesses (often now registered in the UK) but they rarely grow. Likewise large businesses persist and merge, demerge, borrow etc. but compared to the Anglo-saxon world the number of recently founded businesses who start small and grow to be large is miniscule. So miniscule in fact that I cannot actually think of any one other than Airbus, which was of course given lots of state assistance. The US has many examples of companies like Apple or Microsoft which have started with a couple of men in a garage and are now multi-billion dollar enterprises. Although not as widespread companies such as ARM or Virgin have done the same in the UK and there are thousands of companies who have grown to the point of employing a few hundred people. This layer is far smaller in France and, while it is still large in other continental countries such Germany and Italy, there are frequent articles about the general decline of this "Mittlestand".
To me the lack of investment by small enterprises is symptomatic of a culture that is biased against risk, something that starts when the govrenment limits the sorts of mortgage available.