The princes of paperwork

AMONG the many aggrieved parties who have taken to the barricades in recent months to protest reforms intended to make France’s economy more competitive, perhaps the most unlikely were notaries. This special class of lawyers, who oversee most commercial transactions and maintain official registers of property, were objecting to some modest pruning of the thicket of regulation surrounding their job. In Italy, too, the government has provoked outrage by attempting to trim the rules of the profession. The row about even minor changes to a highly protected business shows why structural reform is so slow in some of Europe’s biggest economies.

In America, notaries’ main job is to certify documents, mundane work that requires few qualifications. In France and Italy, however, as in much of continental Europe, valuable assets (houses, companies, shares and so on) cannot change hands without a notary’s approval. Entry to the profession is by a rigorous exam. The number of notaries is restricted, as is the region in which they can work; some of their fees are fixed, too.

In France there are also rules about who can own notary firms (notaries, of course) and who else can work in them (not lawyers, accountants or other professionals). Aptly, a firm of notaries can only change hands with the approval of the professional association. In Germany, notaries must read all documents aloud in front of the parties concerned before signing them, tying them up with string and sealing them with red wax. (Once home, they apply leeches and read by candlelight.)

All these regulations add to costs and shelter notaries from competition, making the profession very lucrative. In 2010 the average self-employed French notary earned €190,812 ($265,309). In Italy, in 2013, the figure was €210,400. The average profit margin of French notaries in 2010 was 35%.

These costs are borne, naturally, by those buying and selling assets, particularly housing. The OECD, a club mostly of rich countries, found in 2009 that legal fees added 1% to the bill for buying a home in France and 2% in Italy, compared to just 0.25% in Britain. Between 1981 and 2011, as French property prices surged, fees paid on housing transactions, which account for half of notaries’ revenues, rose by 68%. That was despite the increased use of technology, which has helped to drive down notaries’ costs.

The French reform paves the way for an increase in the number of notaries in certain parts of France. It also makes their fees more transparent. Better yet, notaries will be allowed to open practices with accountants and lawyers in a bid to provide a one-stop-shop for clients, which should help to lower transaction costs. But the law that included these measures was so controversial that the government did not risk putting it to a vote in the National Assembly; instead, it pushed it through by decree.

In Italy, successive governments have chipped away at notaries’ privileges. Since 2006, for example, it has been possible to buy a used car without recourse to one. In 2012 the government of the day abolished fixed minimum fees. This, plus a slump in transactions, has cut their earnings: in 2008 their average income was €440,800.

The current government wants to go further, allowing notaries to practise anywhere in Italy rather than in a designated region. It also hopes to abolish the arrangement whereby notaries pool their income to ensure a minimum for everyone—a system that dampens the incentive to compete. More dramatically, it would permit mere lawyers to sign off on certain transactions that are currently the exclusive preserve of notaries, such as the sale of non-residential properties worth less than €100,000 and the registration of particular types of companies.

Notaries argue that allowing transactions to take place without their oversight will increase the risk of fraud. The World Bank, after all, considers Italy’s system of property registration superior to Britain’s or Germany’s. It is a terrible place to enforce contracts in court, however, as would be necessary if lawyers took over from notaries. “In a country in which there are so many things to change,” says Eliana Morandi, an Italian notary who has also worked in America, “it is irrational to start with the one thing that works.”

But there are good reasons to fret about high transaction costs. An OECD study published in 2011 found that high legal fees on home purchases acted as a significant disincentive to moving. The report suggested that even small reductions in such costs would encourage greater mobility, which might help the jobless to find work. With unemployment at 10.2% in France and 12.6% in Italy, that sounds like a reform everyone should sign off on.