It has been an interesting fortnight in France. Whilst we have all been aware of the unrest in France, we also ought to sit back and think about the long term underlying causes of this unrest. Earlier this summer, Nicholas Sarkozy was elected as President of France with a clear mandate to revitalise the French economy. In France, the constitution is arranged so that political power in the country lies in the hands of the President. The need for reform is great. The French economy is stuck at a GDP growth rate of about 2% per annum, which is why France is falling behind in the global economy.
To lift the French economy from this malaise will take a series of profound reforms to the economy akin to those undertaken in the British economy in the 1980s. This is why The Economist has dubbed President Sarkozy as France’s Thatcher (see article). So far, the President has remained resolute and the discord in France has grown. The Economist reports that the protesters are becoming more resolute (see article), which has resulted in a spiral of increasing violence (see BBC report).
It is worth, at this point, just considering some of the longer term factors behind this position. If we compare the position of France and Germany in recent years, we can clearly see the impact of reform in the German economy, and the absence of it in the French economy. Whilst this chart only covers a short period, it is telling a story for the long term. If the French economy is not reformed, then it is likely that French GDP growth will remain behind that of Germany and that French unemployment will remain higher than that of Germany.
As a longer term issue, a polarisation of French society is occurring between those who have economic protection (safe jobs, regular salaries, generous pensions) and those who do not. Whilst travelling across France recently, at the Gare du Nord in Paris I was struck by the number of desperate people milling around (they had come from the banlieu of St Denis, which is close by) and the number of police and military at the station. This did not suggest a society at ease with itself.
The current situation could resolve itself in a number of ways. President Sarkozy could give in to the protesters, as his predecessors did. This suggests a France with a sluggish economy in the future. Exactly how this might play out in terms of social dislocation is not quite clear at the moment. However, history suggests that the more able French Citizens will simply move elsewhere in Europe (there is a large colony in London at present).
Equally, the two sides could fudge the issue, in which case we may revisit this situation again in the near future. It is the culmination of a long trend that will need to be resolved. Alternatively, President Sarkozy might gain the upper hand and reform the French economy. Whilst being possible, this is a task that is being made harder as time goes by because the other economies – especially the BRIC economies – are not waiting for the French to make up their minds over what they want to do. There will come a time when this window of action will close. Personally, I believe that, if the French economy is not reformed by the end of this decade, then France will start to lose its position as a major western economy.
What do you think?
To lift the French economy from this malaise will take a series of profound reforms to the economy akin to those undertaken in the British economy in the 1980s. This is why The Economist has dubbed President Sarkozy as France’s Thatcher (see article). So far, the President has remained resolute and the discord in France has grown. The Economist reports that the protesters are becoming more resolute (see article), which has resulted in a spiral of increasing violence (see BBC report).
It is worth, at this point, just considering some of the longer term factors behind this position. If we compare the position of France and Germany in recent years, we can clearly see the impact of reform in the German economy, and the absence of it in the French economy. Whilst this chart only covers a short period, it is telling a story for the long term. If the French economy is not reformed, then it is likely that French GDP growth will remain behind that of Germany and that French unemployment will remain higher than that of Germany.
As a longer term issue, a polarisation of French society is occurring between those who have economic protection (safe jobs, regular salaries, generous pensions) and those who do not. Whilst travelling across France recently, at the Gare du Nord in Paris I was struck by the number of desperate people milling around (they had come from the banlieu of St Denis, which is close by) and the number of police and military at the station. This did not suggest a society at ease with itself.The current situation could resolve itself in a number of ways. President Sarkozy could give in to the protesters, as his predecessors did. This suggests a France with a sluggish economy in the future. Exactly how this might play out in terms of social dislocation is not quite clear at the moment. However, history suggests that the more able French Citizens will simply move elsewhere in Europe (there is a large colony in London at present).
Equally, the two sides could fudge the issue, in which case we may revisit this situation again in the near future. It is the culmination of a long trend that will need to be resolved. Alternatively, President Sarkozy might gain the upper hand and reform the French economy. Whilst being possible, this is a task that is being made harder as time goes by because the other economies – especially the BRIC economies – are not waiting for the French to make up their minds over what they want to do. There will come a time when this window of action will close. Personally, I believe that, if the French economy is not reformed by the end of this decade, then France will start to lose its position as a major western economy.
What do you think?
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