By Milton Ezrati
FRANCE’s ECONOMY is not just doing badly. It is in profound decline.
The slide has proceeded far enough now that businesspeople and
politicians across the Continent increasingly refer to France as the
“sick man of Europe”—quite a distinction at a moment when Greece,
Portugal, Spain and Italy share the hospital ward. For decades, European
Union structures were strong enough to allow Paris to ignore the
country’s economic shortcomings. No longer. Unless Paris reforms its
economic policies and practices, it could have a disastrous effect.
Further economic woes may undermine the Franco-German cooperation on
which the EU has relied, confronting the union with either dissolution
or, more likely, an increasingly Germanic future.
Though recent economic reports show some slight improvement in the
French economy, the underlying picture is nothing if not bleak. A
monthly uptick in industrial production this spring prompted President
François Hollande to declare the recession over. He was wrong. To be
sure, he can now point, if he wishes, to a modest spring expansion in
France’s gross domestic product (GDP). He would do well, however, to
resist declaring victory over a few data points. His optimistic response
to seeming industrial strength was quickly rebutted by subsequent
indicators of renewed decline. He should have known that the
preponderance of economic evidence remains grim and is unlikely to
change anytime soon.
More than one thousand factories have closed in France since 2009.
And not a week goes by without another announcement of relocations to
Eastern Europe or Asia. Rates of new business formation today remain
13.3 percent lower than at the end of 2009, while business failures are 7
percent higher. The pace of home sales, though it seems to have stopped
declining, shows no sign of improvement and remains 16 percent below
2008 levels. Residential real-estate prices continue to decline.
Unemployment rolls have grown without interruption, recently averaging
some 10.5 percent of the nation’s workforce. Youth unemployment averages
over 26 percent. Real wages in France, having stagnated for some time,
have declined for the last four consecutive quarters. The country’s
balance of international payments continues to sink deeper into the red,
with the shortfall of exports to imports almost doubling in just the
past year to almost 3 percent of GDP. Government finances, too, continue
in deficit, far exceeding the EU’s mandated maximum of 3 percent of the
economy. Budget shortfalls over the years have brought public debt
outstanding to fully 90 percent of France’s GDP.
French authorities mostly have either denied the situation’s severity
or blamed it on Germany’s push for budget austerity throughout the euro
zone. There is no shortage of critical remarks to make about the German
approach, but it can hardly explain France’s economic problems. France,
after all, hardly has imposed much austerity. It has promised to do so
but otherwise has asked of itself none of the sharp government spending
cuts evident elsewhere in Europe’s periphery. On the contrary, French
government spending has continued to grow, rising almost 4 percent
during the last two years. Government in France now constitutes some 57
percent of the entire economy, well above the euro zone’s average.
Meanwhile, Paris recently sidestepped the need for more strictures,
receiving permission from the EU bureaucracy to continue wider budget
deficits than EU rules allow until 2015 at the earliest. Nor can French
officials honestly blame German austerity when their nation’s economic
slide has beginnings long before the current crisis or Berlin’s response
to it. France, quite simply, has been underperforming the rest of
Europe for over a decade.
It is this longer-term erosion that speaks to France’s economic
failure. Germany offers a useful counterpoint. Whereas ten years ago the
French economy rivaled Germany’s, today France produces only half the
value added. French exports, having fallen more than 20 percent since
2005, are lower today than anytime during the last twenty years. In
contrast, Germany has enjoyed an export surge in the past few years,
pushing the country up from recession lows to its all-time high. France
has even begun to trail Europe’s troubled periphery. While it has 10
percent fewer exporting firms than it had thirteen years ago, troubled
Italy has 8.7 percent more. France’s share of global exports has fallen
from 7 percent in 1999 to only 3 percent today. During this time, its
share of the euro zone’s exports has fallen from 17 percent to merely 12
percent. Real per capita incomes in France have grown at barely half
Germany’s rate, while profits in French industry have fallen from highs
approaching 9 percent of GDP to barely over 6 percent today, only half
the euro zone’s average and hardly sufficient for French industry to
finance itself.
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