Paris In the Rain #laVilleLumière

Paris In the Rain (Photo: R. Wottrich)

Atlanta USA, 24 June 2017

Recent market sentiment is trending optimistic about the French economy, but there is scant evidence to support this view. Much of this jingoism is generated by the election of France’s new President Emmanuel Macron. However, Macron faces the same intransigent bureaucracy that every French president has faced for decades.

Meanwhile the EU is jumping with glee at the prospect of driving the UK down in economic misery for its Brexit effrontery. We have not seen this level of ‘piling on’ since Europe subjugated Germany after World War I. But such venom is misdirected. The EU has lost an important partner and euro zone problems have not improved a wit.

With Germany the runaway economic leader in the EU [German GDP: $3.4 trillion], and with the UK leaving the euro zone [UK GDP: $2.8 trillion], France remains the only other economic powerhouse in Europe [France GDP: $2.4 trillion]. But France is the weakest of the big three. Prior to the big crash of 2008, France’s growth rate was in step with the rest of the EU.  But now France trails the EU trend GDP growth rate of 1.6 percent.

It has taken longer for French productivity to return to pre-2008 levels. France’s per capita income finally recovered to those levels in 2016; compared to UK recovering in 2015, the U.S. in 2014, Japan in 2013, and Germany in 2010. French debt is now close to 100 percent of GDP, while its government spending as a percentage of GDP is among the highest in the EU at 31.5 percent. France’s 10 percent unemployment rate reveals a skills gap that runs deeply across all industries. Unemployment is even worse for French youth, with nearly twenty-five percent of those between 15 and 24 unemployed.

The odds are against growth in France for myriad reasons. Only sixty-eight percent of France’s GDP is in the private sector, meaning that the baseline for economic growth is just $1.65 trillion. Germany’s exports alone total nearly 80 percent of France’s entire private sector GDP! Of France’s 67 million citizens, perhaps 12 percent are associated with North African countries. A significant percentage of these North Africans have not assimilated into the social and economic fabric of France and many are supported by government social spending.

Both Macron and the EU focus on the wrong problems – prioritizing tight money and low inflation, rather than job creation throughout the euro zone. The bureaucrats in Brussels are of course jubilant that Macron won, as is Germany. Things are working just fine for the elites and the mighty German export machine, but significant economic growth in France, when and if it comes, will be infinitesimal and glacial.

“The spectacle of this lovely nation, with its great agricultural wealth and its cultural riches, continually stepping on its own toes, made me wonder if France suffered a kind of national neurosis” ― Julia Child

Richard Wottrich, blog author