German Chancellor Angela Merkel and French President Nicolas Sarkozy will announce a basket of proposals for reforming the eurozone called the “pact for competitiveness” this Friday.
It makes sense for Germany to want this. Thus far, it has been the payer in the eurozone crisis, baring the costs of the bad economic decision-making of weaker states. Forcing those states to reform and look more like itself seems like a solid strategy.
But why would France be interested? Its employment market looks terrible compared to Germany.
From Societe Generale:
What is also striking, from a French perspective, has been the relative performance of the two countries’ labour markets since 2003. Germany has created 1.8 million jobs, two- and-a-half times as many as France. In 2010 the gap between employment rates in France and Germany was 7% of the active population. In 2003 it was just 0.3%. Similarly, the unemployment rate, under ILO definitions, fell from 9.2% in 2003 to 6.7% at the end of 2010 in Germany, but rose from 8.3% to 9.3% in France over the same period.
In order to catch up with Germany, France needs to implement reforms similar to those made by Germany. But how does France do that when thousands of protesters flock to the street over an issue so minuscule as raising the retirement age to 62?
Easy, you get the European Union to do it for you. Hence Sarkozy’s support for the “pact for competitiveness,” which will further raise the retirement age and put in place other labour market reforms.
Just look at the gap that has opened up between Germany and France, since the former implemented the Hartz reforms, from Societe Generale:
Photo: Societe Generale
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