The Problem With France...

Ahead of tomorrow’s first-round election, it’s worth talking about France some more, and what kind of economic issues the country faces.

France is usually considered ‘core’ Europe, right alongside Germany and other northern states. That’s because it is rich, big, and stable. But in reality, it’s barely hanging on to that designation.

For example, as this chart from Barclays demonstrates, French yields move in close correlation with Italian yields. That was especially the case last year.

french italian yields

Photo: Barclays

In a new note, Credit Suisse’s Andrew Garthwaite goes over some other fundmanetal problems with the French economy.

Here are some of his key points:

  • Under Sarkozy, France has a terrible record of economic deregulation.
  • labour costs are among the highest in Europe.
  • France is second only to Greece in terms of how closed the economy is.
  • Debt dynamics bear more resemblance to peripheral countries than they do the ‘core’

On this last issue of “debt” some of the charts really do look troublesome

french debt chart

Photo: Credit Suisse

One interesting thing about thea bove chart is that the countries that are high up on the government spending/GDP chart tend to be strong nations (nobody worries much about Denmark, Finland, and Sweden)

french chart

Photo: Credit Suisse

The above chart there speaks for itself, though the significance of international ownership is probably overstated.

One more chart about international trade helps confirm the idea that France is not ‘core’.


Photo: Credit Suisse

Bottom line: The French economy bears a lot of characteristics of a non-core economy. It’s not a wreck yet, but you can see why the stakes are high for the political outcome.

For more on waht’s happening in France tomorrow, see here >

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