October 22, 2015    4 minute read

France: The Rogue Economy

   October 22, 2015    4 minute read

France: The Rogue Economy

Once nearly the economic equal of Germany, France has fallen well behind over the past decade, with per capital GDP now about 10% lower. Back in the Seventies, the UK was the “sick man of Europe”. Now that title belongs to France. In a field, which includes Italy, Spain and Greece, the Eurozone’s second-biggest economy is now viewed as one of the most problematic country on the continent. There is a view that the French economy is vastly different in its operation from other modern economies. France is even sometimes depicted as a “rogue economy”, where workers are constantly on strike, businesses are held hostage to all powerful unions, and peoples aspiration of free enterprise is nearly impossible. Or so the story goes.

There’s data which showcases France’s “rogue” status. In the last five years, France has consistently lost more than 100 days of work a year through strikes for every 1,000 employees. For Germany, it is a fraction of that, at just under four days for 1,000 workers. While in the UK, 19 days lost for 1,000 workers in 2009 – comes above Germany but still nowhere near France. There are few people feeling confident about France’s economic future. Compounded by their 35-hour working week, France’s left-wing policy is coming through great security as their economy continues to unperformed.

Zero growth in the three months to June follows an expansion of 0.7% in the first three months of the year. This was revised up from an initial estimate of 0.6%. The second quarter figure was lower than the 0.2% expansion predicted by economists. Many said France was unlikely to post growth of much more than 1% this year. Nevertheless, progressive economists love the French government for spending a staggering 57% of GDP, compared with German government expenditure which stands at 44% of GDP.  Many wonder how the Eurozone would’ve look if a healthy French materialized.

Back in 2012, President Hollande was sworn into power. His socialist inspired programme of more regulation, higher spending and punitive taxation – not least his 75 per cent top rate of income tax, which has seen a flood of wealthy French professionals move to London – is being widely blamed for this dismal French growth performance.

France’s struggles are highlighted by their bond price. The German 10-year Bund, yields at 0.616. Comparing this to the French 10-year which yields at 0.906. This higher yield indicates a lack of appetite in French bond, when comparing it to Germany. Recently, Moody’s cut France’s sovereign debt rating one notch to Aa2 on Friday, saying the country will struggle with slow growth and a high debt burden for the next five years. This is highlighted by the lack of demand in the France 10-year. The downgrade was by one notch from the previous Aa1 rating. France lost its top-flight Aaa rating in November 2012 as the Eurozone sank into crisis, and the new rating is two steps below that. Moody’s said that France’s credit-worthiness “remains extremely high” overall and gave the new rating a “stable” outlook. According to Moody’s:

“The current economic recovery in France has already proven to be significantly slower…France faces material economic challenges, such as a high rate of structural unemployment, relatively weak corporate profit margins and a loss of global export market share that have their roots in long-standing rigidities in its labour and product markets”

This article illustrates how a once powerful European economy is now finding itself in the red. An issue which has been somewhat left in the shadows by the crisis occurring in Greece and the periphery of the Eurozone. The problem of the French economy was born out the 2008 crisis and the struggling Eurozone, but France isn’t powering out of the crisis as is the example seen by USA, UK and to a lesser extent, Germany. A dysfunctional Europe hasn’t helped this process, but neither has the policies of President Hollande, and this is where the blame has be laid.

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