Is haute couture coming apart at the seams?

Parisian fashion is reeling from police raids and financial collapse, writes John Lichfield

In the French capital, the connection between rags and riches is long established. In the past week, however, two stories from the opposite ends of the rag trade suggest that the French fashion industry may be coming apart at some of its seams.

At the top end of the market, Claude Montana, one of the few remaining independent haute couturiers and a cult figure of the 1970s and 1980s, is in serious financial trouble. He has lost pounds 5m over two years, on a turnover of just pounds 700,000. His plight draws attention to the fact - disguised by the continuing success of a handful of big names - that the French industry is losing creative and commercial ground rapidly to Italy, the US and Britain.

At the lower end of the market, there was an unprecedented legal explosion in the engine- room of the industry, the labyrinth of streets in the heart of Paris where racks of ready-to-wear clothes can be cut out and sewn in a matter of hours. On Tuesday, 300 police officers made pre-dawn raids on the homes and workshops of 50 small businessmen in the Sentier district, one of the last manufacturing areas in the capital. By the end of the week, 53 people had been placed under formal examination, accused of belonging to an extensive and complex conspiracy to defraud the banks. In effect, they are accused of seeking and insuring loans for fictitious transactions, and then claiming the insurance money when the deals "collapsed".

The raid sent shock waves of surprise and schadenfreude through the rest of commercial Paris. The Sentier has always lived a charmed life as the exception to the "exception francaise". Where the rest of French business swims in red tape and incestuous insider relationships, the Sentier is a shark-pool of the sort of raw commercial practice which the French usually associate with Asians and Anglo-Saxons. Windows are blanked out with newspapers; plain vans jostle for street-room day and night; Pakistani or Turkish labourers work for Tunisian or Moroccan bosses by the day or the hour. "Here, when they talk about a 35-hour week, we crack up laughing," one Sentier trader said last week.

None of this has ever been challenged because the area, a "golden rectangle" just north of Les Halles and south of the Grands Boulevards, employs 45,000 people and represents almost half the turnover of the Parisian textile industry. Earlier this year, however, several of the largest French banks complained that sharp business practices had degenerated into outright fraud. Varying reports place the amount of money involved at between pounds 35m and pounds 100m.

The connection with the difficulties of Claude Montana may seem remote. Montana, known for his leather jackets in the 1970s and outlandishly shouldered Star Trek styles in the 1980s, typifies the loss of creative and commercial steam in the upper reaches of the French fashion industry. There are now only 15 fashion houses in the Parisian Chamber of Couturiers, compared to 39 in the 1960s and 106 in the 1940s. When overpriced designer perfumes are stripped from the figures, the turnover of the surviving 15 (and a handful of other Paris designers) is pounds 2bn a year, not much more than that of Calvin Klein in New York alone.

Observers of the industry say the two developments are, none the less, closely linked. The decline at the top of the French industry has squeezed the amount of work - from up-market ready-to-wear manufacturing to down- market copying - available for the Golden Rectangle. The more established businesses still have plenty of work, from labels like Kookai and Naf- Naf. But some unscrupulous smaller traders, emboldened by the charmed legal life of the Sentier, have taken to inventing transactions out of whole cloth.