The European Commission within a Macroeconomic Imbalance Procedure has published the most recent review. The document has enlisted those EU countries in need to address their macroeconomic imbalances.
The leading out of the thirteen countries is France. The second largest economy in the European Union seems to be more troubled than it had been imagined.
The serious French Macroeconomic Imbalances were recognized in May 2012. The problems started to emerge on developments related to export performance and competitiveness. However, the recent review has been deepened and widened in identifying troubles of France’s economic performances.
Three main problems have been labeled as alarming: deterioration of export performance, rigidities on the labor market and increasing public debt. The commission calls the government for urgent reforms.
Worsening of export performance has become obvious since the beginning of the 2000s. During 2003-08 the shares decreased by 21.5%. Although current trends have been bettering since then, based on the current research overall performance is still alarming (5-year-change in market shares sets at a loss of 11.2%) See the Graph 6:
As for the rigidities on labor market, the analyses envisage the problems state legislation creates for the labor market. The employment protection legislation for permanent contracts reduces flexibility and adjustment procedures of an employee within a company. Another problem is the high statutory minimum wage. It prevents downward wage flexibility (see Graph 24, 25).
France has been encountering the public debt problem for a long time. The measure to reduce the 90.3% of GDP at 80% level in 2011 could not have been realized and this year’s public debt is expected to be 93% of total GDP. The rule of keeping annual debt rate under 3 % has been breached since 2003. The trend seems to continue still (see the Graph 17)
The document should be analyzed in the contrast to the recent political developments in France. The Commission’s review will further blush the government of France. Elected with the strong socialist promises, Mr. Hollande has already been criticized on regular basis. The recent scandal was about the former budget minister, Jerome Cahuzac, who confessed to hiding €600,000 in a secret foreign account and lying over it. Moreover, the alleged involvement of a close friend and treasurer for his presidential election campaign, Jean-Jacques Augier, adds to the pressure on Hollande. The latter was reported of inverting in offshore businesses in the Cayman Islands.
Nevertheless, the loss of president’s support is most importantly connected to the failed attempts to strongly oppose the austerity policy of the EU and Germany. He seemed a kind of hope for the left-minded and indebted EU countries against strong German voice. Quite contrary, as a matter of fact, the president supports the idea of cutting spending.
Deprived of any meaningful instrument to address the recent scandals, the leader of opposition conservative party described the president as a „Somebody in a garage repairing a car„.
Going back to a huge imbalance in French macroeconomics, the European Commission demands vivid reforms from the government. Judging by the suggested reforms, one could argue that Hollande will have to further sacrifice his socialist beliefs and upset his left-wing supporters.
Displeased by the review, the president said on Wednesday he had no plans to change his budget proposal adopted in January. All this will definitely harden “friendly tension” (as Hollande coined) relations between France and Germany.
Giorgi Bobghiashvili