As Greece, Spain, Portugal and Italy make difficult cuts in an attempt to make their economies more competitive, France is pushing back against austerity and in danger of becoming the socialist rump of Europe.
Fifty-seven percent of France's GDP is government spending. Debt to GDP is now at 90 percent and climbing. France has high dividend taxes, very high
payroll taxes, a wealth tax, a 35 hour work week and 10 percent unemployment. Add all this up and you have what
The Economist magazine
recently dubbed "the time-bomb at the heart of Europe."
As if on cue,
last Tuesday Moody's credit rating agency downgraded French debt to one notch below triple-A status. This followed a similar downgrade earlier in the year by S&P. Both agencies have a negative outlook for France, effectively a warning that further downgrades will come if structural changes to the economy are not made.
But structural change doesn't come easy in France where a pampered, unionized workforce vocally resists any change to its unsustainable system. Simon Heffer writing in the Daily Mail
recounts a few telling incidents which took place under former President Sarkozy:
Mr Sarkozy...commissioned a progressive socialist, Jacques Attali, to draw up a list of essential reforms that would make France more competitive and efficient. In January 2008, Mr Attali delivered a list of 316 proposals.The fate of two of these sensible suggestions symbolised the futility of the whole exercise.
First, take the example of Mr Attali’s idea that the number of licensed taxis should be increased. The number had remained the same since 1924. But taxi drivers, furious that more licenses would mean less work for each of them, called a strike which paralysed the city as other public
transport services came out in sympathy. The idea was swiftly abandoned.
Second, reform of the way proprietary medicine was dispensed was proposed to break the monopoly enjoyed by pharmacists. Indeed, it is impossible to buy minor drugs such as aspirin in a supermarket in France. Thus Mr Attali proposed that any shop should be allowed to sell over-the-counter drugs. A strike by pharmacists put an end to that.
The question is whether newly elected socialist President Francois Hollande can make the necessary changes to the French system despite being elected on a platform of reversing modest reforms enacted by President Sarkozy. Most notably, Sarkozy upped the retirement age in France's equivalent of Social Security from 60 to 62, but Hollande ran on reversing this change. It's a campaign promise he has kept.
