France and the euro
By The Economist
From The Economist
Published: November 19, 2012
Why France could become the biggest danger to Europe’s single currency.
Nov 17th 2012 | from the print edition
THE threat of the euro’s collapse has abated for the moment, but putting the single currency right will involve years of pain. The pressure for reform and budget cuts is fiercest in Greece, Portugal, Spain and Italy, which all saw mass strikes and clashes with police this week (see article). But ahead looms a bigger problem that could dwarf any of these: France.
The country has always been at the heart of the euro, as of the European Union. President François Mitterrand argued for the single currency because he hoped to bolster French influence in an EU that would otherwise fall under the sway of a unified Germany. France has gained from the euro: it is borrowing at record low rates and has avoided the troubles of the Mediterranean. Yet even before May, when François Hollande became the country’s first Socialist president since Mitterrand, France had ceded leadership in the euro crisis to Germany. And now its economy looks increasingly vulnerable as well.
As our special report in this issue explains, France still has many strengths, but its weaknesses have been laid bare by the euro crisis. For years it has been losing competitiveness to Germany and the trend has accelerated as the Germans have cut costs and pushed through big reforms. Without the option of currency devaluation, France has resorted to public spending and debt. Even as other EU countries have curbed the reach of the state, it has grown in France to consume almost 57% of GDP, the highest share in the euro zone. Because of the failure to balance a single budget since 1981, public debt has risen from 22% of GDP then to over 90% now.
The business climate in France has also worsened. French firms are burdened by overly rigid labour- and product-market regulation, exceptionally high taxes and the euro zone’s heaviest social charges on payrolls. Not surprisingly, new companies are rare. France has fewer small and medium-sized enterprises, today’s engines of job growth, than Germany, Italy or Britain. The economy is stagnant, may tip into recession this quarter and will barely grow next year. Over 10% of the workforce, and over 25% of the young, are jobless. The external current-account deficit has swung from a small surplus in 1999 into one of the euro zone’s biggest deficits. In short, too many of France’s firms are uncompetitive and the country’s bloated government is living beyond its means.
Hollande at bay
With enough boldness and grit, Mr Hollande could now reform France. His party holds power in the legislature and in almost all the regions. The left should be better able than the right to persuade the unions to accept change. Mr Hollande has acknowledged that France lacks competitiveness. And, encouragingly, he has recently promised to implement many of the changes recommended in a new report by Louis Gallois, a businessman, including reducing the burden of social charges on companies. The president wants to make the labour market more flexible. This week he even talked of the excessive size of the state, promising to “do better, while spending less”.
Yet set against the gravity of France’s economic problems, Mr Hollande still seems half-hearted. Why should business believe him when he has already pushed through a string of leftish measures, including a 75% top income-tax rate, increased taxes on companies, wealth, capital gains and dividends, a higher minimum wage and a partial rollback of a previously accepted rise in the pension age? No wonder so many would-be entrepreneurs are talking of leaving the country.
European governments that have undertaken big reforms have done so because there was a deep sense of crisis, because voters believed there was no alternative and because political leaders had the conviction that change was unavoidable. None of this describes Mr Hollande or France. During the election campaign, Mr Hollande barely mentioned the need for business-friendly reform, focusing instead on ending austerity. His Socialist Party remains unmodernised and hostile to capitalism: since he began to warn about France’s competitiveness, his approval rating has plunged. Worse, France is aiming at a moving target. All euro-zone countries are making structural reforms, and mostly faster and more extensively than France is doing (see article). The IMF recently warned that France risks being left behind by Italy and Spain.
At stake is not just the future of France, but that of the euro. Mr Hollande has correctly badgered Angela Merkel for pushing austerity too hard. But he has hidden behind his napkin when it comes to the political integration needed to solve the euro crisis. There has to be greater European-level control over national economic policies. France has reluctantly ratified the recent fiscal compact, which gives Brussels extra budgetary powers. But neither the elite nor the voters are yet prepared to transfer more sovereignty, just as they are unprepared for deep structural reforms. While most countries discuss how much sovereignty they will have to give up, France is resolutely avoiding any debate on the future of Europe. Mr Hollande was badly burned in 2005 when voters rejected the EU constitutional treaty after his party split down the middle. A repeat of that would pitch the single currency into chaos.
Too big not to succeed?
Our most recent special report on a big European country (in June 2011) focused on Italy’s failure to reform under Silvio Berlusconi; by the end of the year he was out—and change had begun. So far investors have been indulgent of France; indeed, long-term interest rates have fallen a bit. But sooner or later the centime will drop. You cannot defy economics for long.
Unless Mr Hollande shows that he is genuinely committed to changing the path his country has been on for the past 30 years, France will lose the faith of investors—and of Germany. As several euro-zone countries have found, sentiment in the markets can shift quickly. The crisis could hit as early as next year. Previous European currency upheavals have often started elsewhere only to finish by engulfing France—and this time, too, France rather than Italy or Spain could be where the euro’s fate is decided. Mr Hollande does not have long to defuse the time-bomb at the heart of Europe.
from the print edition | Leaders
歐洲心臟地帶的定時炸彈：法國
2012-11-19 Web only 作者：經濟學人
歐元崩潰的危機已暫時解除，但想讓歐元走回正軌，但承受好幾年的痛苦才行。希臘、葡萄牙、西班牙、義大利承受著巨大的改革和預算刪減壓力，但最大問題可能會來自法國。
法國一向處於歐元和歐盟的核心，但就算是在歐蘭德上任之前，法國已經將歐元危機的領導地位讓給了德國。現在，法國的經濟問題似乎也越來越嚴重。法國仍有許多強項，但歐元危機也曝露了法國的弱點。
法國企業受制於過度嚴格的勞力及商品市場規範、極高稅率以及歐元區最重的社會稅；經濟陷於停滯，可能會在第三季陷入衰退，明年也難有成長；超過10%的勞動力、超過25%的年輕人沒有工作。簡言之，太多法國企業缺乏競爭力，法國政府則入不敷出。
歐蘭德可以改革法國，社會黨掌控了國會和幾乎所有地區，左派也比較有能力說服工會。歐蘭德承認法國缺乏競爭力，最近也承諾推動各項改革。
許多歐洲政府之所以推動重大改革，是因為它們深深感受到了危機、選民相信沒有別的選擇，政治領袖也深信改變無可避免；而法國和歐蘭德都不是這樣。每個歐元區國家都在進行結構性改革，而且大多比法國更快、更全面；IMF最近警告，法國可能會被義大利和西班牙拋在後頭。
除非歐蘭德展現改革的決心，否則法國將失去投資者和德國的信任。危機最快將於明年來臨，先前的歐洲貨幣劇變常始於他地，而以捲入法國作結；這次也是如此，決定歐元命運的，可能就是法國。（黃維德譯）
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