France Is Its Worst Enemy

by on November 18, 2013 5:17 pm GMT

France was accredited with helping the eurozone out of the longest recession in the union’s history, but it is not peachy inside the second largest European economy. France has been dealt tough second half of the year, and it is likely that these issues will continue to affect the country for the near-term.

The unemployment is still very high at 11 percent, just 1.2 percent lower than the eurozone’s unemployment rate as a whole. When the eurozone finally achieved positive growth, Germany and France were contributing factors in this positive growth. However, France contributed .5 percent in gross-domestic product in September. Since then, France’s economy has contracted, and November’s GDP figures came in at negative .1 percent. The country’s public debt is also growing at a face pace. In reaction to this, the Standard and Poor’s credit agency downgraded France’s credit rating twice in the last two years.

French president Francois Hollande quickly fell out of favor as his socialist administration has been facing tough protests of the French people over very high taxes and overregulation from businesses. Soccer players are also thinking twice as Hollande hit them with a 75 percent tax over one million in earnings. Smaller tax increases were thrown about which was received poorly by the struggling French.  The president’s approval rate currently stands at 15 percent. The current administration is underwater, and the absence of leadership will undoubtedly turn France into a pseudo-peripheral eurozone country.

The European Commission recently voiced their concerns that France is not conducting economic reform fast enough.”In recent years, a significant adjustment has been under way in several European countries that have accelerated the introduction of essential reforms. This adjustment hasn’t yet happened in France,” according to the report issued by the Organization for Economic Cooperation and Development.

However, France is not alone. Several European countries and the United States is failing in proping up fragile economies through fiscal reform. They are also relying heavily on tax revenue instead of getting public debt under control. The French ratio of public debt-to-GDP is 57 percent and the highest in the eurozone.

A study from Anders Aslund, from the Peterson Institute, showed that those countries that increased their public debt did far worse than countries who brought in their spending and embraced reforms in terms of GDP growth. Countries like Britain and Ireland, whom cut spending deep, are seeing positive changes in their economies now while the rest of Europe is just kind of blowing in the wind.

The socialist president has a lot on his plate, and France’s long-term outlook may be a grim one. In the ignorance of marco-fundamentals, the global equity market hopium is masking the majority of France’s struggles. But, when that hopium euphoria fades, France will have an increasing long road ahead of them.