Industrial Insight

France and our future… | January 10, 2013

http://finance.fortune.cnn.com/2013/01/09/france-economy-crisis/

The euro crisis no one is talking about: France is in free fall

By Shawn Tully, senior editor-at-large January 9, 2013: 9:26 AM ET

France’s decline is best illustrated by the rapid deterioration in its foreign trade. In 1999, France sold around 7% of the world’s exports. Today, the figure is just over 3%, and falling fast. The same high costs that are pounding exports draw an ever rising flow of goods from Germany, China and even southern Europe. Those imports are taking an increasing share of sales from pricier French-made products. In 2005, France’s trade balance was a positive 0.5% of GDP. Today, it stands at minus 2.7% of national income, meaning imports now far exceed exports, turning trade from a growth-generator into a major drag. An excellent illustration of the competitiveness gap is the chasm between German and French exports to China. Germany sends $70 billion in cars, machine tools and other products to China each year, seven times the figure for France.

The main reason for France’s cost disadvantage is the burden of labor, a factor that typically accounts for around 70% of all corporate expenses worldwide. In France, the problem comprises a both high wage and social costs, and rigid laws, including a 35-hour work week that allows French employees the lowest number of working hours in the developed world. An astounding 86% of all wage earners enjoy “contrats a durée indéterminées,” permanent contracts that make layoffs extremely expensive and time-consuming.

In France, 42 euros for every 100 euros in total expenses go to social charges, versus 34 euros in Germany, 26 in the UK, and 20 in the US.

Since 2005, France’s unit labor costs — the expense of producing a single car or steel beam, for example — has jumped 17% compared with 10% for Germany, 5.8% for Spain, and 2% for Ireland. Today, French workers earn an average of 35.3 euros per hour, compared with 25.8 in Italy, 22 in the UK and Spain.

Government spending now accounts for 57% of GDP and increasing, 12 points higher than Germany. By the way, Germany’s private sector is growing briskly as public expenditures drop as a share of national income. The opposite dynamic is plaguing its long-time partner.

It’s totally implausible to blame “austerity” for France’s poor growth. Austerity is generally defined as large reductions in budget deficits, mainly driven by falling government spending. But France’s spending has increased in real terms, and its deficits have been remained at a substantial 5% or so of GDP in 2011 and 2012, with the same figure likely for this year.

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