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The sick man of Europe is a woman

07 February 2019

 Salomons Judgement

If you think Italy is bad, then check out France. The economy of this country is the real problem in Europe.

Last week, I read a nice interview with Patrick Artus (chief economist at Natixis), who warned that the French are economically immature. After that interview, I studied the French economic statistics and they scared me to death. Its economic growth is simply unacceptably low.

In 2000, the unemployment rate was 8% in both France and Germany. In Germany this has dropped below 4%, but in France it’s above 8% now. The competitive position of both countries explains the enormous difference between them. Since France has joined the euro zone, the country has experienced a decrease of no less than 40% market share in its exports.

The main reason is the labour market. French wages have slightly declined compared to the German wages(not nearly as much as for example in Spain). They don’t like to hear it in Paris, but France is like Italy. The power of the trade unions is unprecedented, the level of the minimum wage is simply too high, and the dismissal law is not very flexible.

Not competitive

France is not competitive. One was hoping this would change. The ECB bought bonds, but above all time. Reforms were necessary, but the urgency was lacking. The realized growth is still quite reasonable. But that’s also the problem, as a large part of that growth is driven by debt. Since 2000, the non-financial debts (as a percentage of the GDP) in Germany has declined from 180% to 160%. In the same period, that percentage increased from 150% to 240% in France.

If you think Italy is bad, then check out France. This country is the real problem in Europe. There will only be a balance when the Germans start to spend and the French start to reform. However, the chances of reform are further away than ever before now that growth is declining and the central banks cannot reduce their rates any further. France is sliding towards the periphery. The really sick man of Europe is a woman called Marianne.

The author

Roelof Salomons

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