France’s Finances Under The Microscope

The OECD has a new country report out on France:

France’s rising government debt threatens the sustainability of public finances in the eurozone’s second biggest economy, the Organisation for Economic Co-operation and Development has warned in its latest country report.

The Paris-based OECD said that a lack of control over public spending could leave France unprepared to deal with the financial consequences of an ageing society.”

I rest my case.

Below I reproduce an extract from the OECD policy brief. Full details of the report can be found on this page.

Economic Survey of France, 2005


France has high productivity per hour worked and a sophisticated social welfare system, but it also suffers from low labour force participation and high structural unemployment. This poor labour market performance contributes to a persistent budget deficit which is exacerbating, rather than alleviating, the fiscal pressures arising from ageing.

? Rising public debt threatens fiscal sustainability. It is partly a result of insufficient public expenditure control and insufficient public understanding of the need to meet long-run challenges as well as short-term targets.

? Aspects of the labour code designed to protect employees, and some aspects of the system of social transfers have had some unintended but perverse consequences leading to structurally high levels of unemployment and low participation rates.

? Dynamism and growth of activity and employment are held back by a lack of competition in a large number of service sectors.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

6 thoughts on “France’s Finances Under The Microscope

  1. After reading the FT report on the OECD survey of the French economy, I am surprised that the usual Paris-based suspects have not denounced this as further evidence of the diabolical Anglo-Saxon conspiracy and called for more strikes of public sector workers to demonstrate support for France’s social model and even greater EU subsidies for agriculture.

  2. The government had a chance to promote a real public debate about spending and blew it. In the response to the heatwave crisis, they identified some presumably legitimate needs for extra spending. So they could have said that we need to find this money, for a consensus need, and then pose the question “how do we raise the funds?” Higher taxes, or cut something else? The overtaxed French would have balked at the former, so maybe the latter gets a serious look. But instead they make the funds the payroll taxes from this “Day of Solidarity” on the Pentecost holiday, which tangled in debates about work hours and the precious vacances as well — all nicely timed 2 weeks before the EU referendum. A competent government would have done things very differently — and maybe driven home some reform messages in the process.

  3. What is interesting is how calm international stock and bond markets are. There is no reflection of anything amiss in the markets.

  4. I go out to take books back to the local library and do a bit of grocery shopping and the newspaper billboards for the London Evening Standard have headlines: It’s war with France. I joke not. As the man said, it’s deja vu all over again.

  5. I think the reason the markets are taking this so calmly is because the market banked on this happening. For them, 3-5 years of political stagnation, this is “certainty” factored into the market. Should things be resolved within a 3-5 year period it will be considered a bonus.

  6. Only 3-5 years? At least that is definitely progress of a kind on the Revolutionary and Napoleonic Wars, which lasted from 1793 through 1815, an earlier but ultimately abortive attempt at European integration.

    France’s new prime minister, Dominique De Villepin, was reported saying in an interview with the Washington Post only two years back:

    “BRUSSELS [24 February 2003] — Was Napoleon’s defeat at Waterloo a glorious moment in France’s history? In a best-selling account of Napoleon’s final days published two years ago, France’s multi-talented foreign minister, Dominique Galouzeau de Villepin, argues that, yes, even today, Napoleon’s defeat ‘shines with an aura worthy of victory.’ . . ”

    On the BBC’s radio Today programme, they had an interview clip with someone saying they were setting up to re-enact the Battle of Waterloo on the site where it happened, about now in the calendar, 190 years ago. I trust events won’t get out of hand:

    ” . . all of the Napoleonic battles listed above began and ended on the same day, usually from sunrise to sunset. Waterloo was a 10-hour battle; therefore, there were an everage of 6,100 casualties per hour of the battle. This is tremendous. Except for a very few battles in World War I, no battle fought in the 20th Century can come close to matching the horror of the typical large Napoleonic battle.”

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