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Economists dub France the 'sick man of Europe'

Ben McPartland · 10 Dec 2013, 11:15

Published: 10 Dec 2013 11:15 GMT+01:00

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A new report by The Lisbon Council, a Brussels-based think tank, will not have gone down well in the corridors of power in Paris this week after it labelled France the real "sick man of Europe".

Whereas the Euro Plus Monitor report was optimistic for the rest of Europe to pull out of the crisis it singled out France for a rollicking, saying its economic policies have changed little.

"In the 2011 Euro Plus Monitor, we warned that 'alarm bells should be ringing for France.' It came out as the only major economy in Europe which is stricken with deep-seated fundamental weaknesses without doing anything about it," said the report which was penned by Dr Holger Schmieding and Dr Christian Schulz from Berenberg, Germany’s oldest private bank.

"Unfortunately in two years nothing much has changed."

The Euro Plus Monitor looks at a country's ability to reform and ranks countries according to the "global health" of their economy. In the 2013 study France was placed 16th ahead of Portugal and Greece but behind Spain.

However the authors warn that France could soon be "bottom of the pile" of Europe's economies and echoing a phrase that was once famously used to describe Germany in the 1990s it twisted the knife saying "France really is the sick man of Europe."

The problem with France, the Berenberg economists say, is that there are not enough economic reforms taking place and those that have been implemented barely scratch the surface.

"The French aversion to reforms and its politics is a serious tail risk for Europe. 

"Reforming France is difficult due to the French tradition of staging major protests against even minor changes to perceived entitlement. President Hollande currently seems unwilling to deliver more than a series of modest changes. 

"The possibility of France committing political suicide and blowing up the Euro and its alliance with Germany is one of the key tail risks to watch in Europe."

EU Commissioner Olli Rehn agreed, saying: “France has a tendency of increasing the taxes instead of going for structural reforms, which is not good for growth."

However the Berenberg bank pair said there was good news for France if it could sort its economy out because, unlike Germany in the 1990s, France "has the young people and the babies to fill the jobs of the future".

Naturally not all economists agreed with The Lisbon Council's damming verdict on France.

Christophe Blot from the French Economic Observatory in Paris told The Local that France had implemented reforms if not the "revolution" that liberal thinkers have been calling for.

“It’s not true to say there’s been no change in France since 2011. Of course there hasn’t been a revolution in economic policies but there have been reforms," Blot said.

“Things are being done to reduce the public deficit. There have been tax increases on the one hand and now the government is focusing on cuts to public expenditure.

There have been reforms to the pension system aimed at postponing the age at which people retire."

Those controversial reforms, which have provoked street protests, raised the pay-in period for pension contributions from the current 41.5 years to 43 years by 2035, meaning employees will need to work longer to be eligible for full pensions.

The plan also proposes increasing employee and employer contributions to France's retirement system, but avoided more controversial proposals such as raising the official retirement age from the current age of 62.

Blot pointed out that there have also been reforms to the labour market aimed at increasing flexibility after the government reached an agreement with trade unions.

Story continues below…

“There have also been tax reductions introduced for firms to help them become more competitive. Maybe these reforms will take some time to have an effect," said Blot.

“France is certainly not the sick man of Europe. You just have to look at Spain, Portugal and Greece where the level of unemployment is much higher. The main problem in the Eurozone is not France’s lack of reforms but a lack of demand and the impact of too much austerity.

“These reports are often written from a liberal point of view; they want to see these major reforms in France but anyone hoping for a revolution will be disappointed.

"Perhaps going slowly is the right way to go for France," Blot said.

Ben McPartland (ben.mcpartland@thelocal.com)

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