Research (Conseq)
Macroeconomics  |  March 07, 2013 16:17:19

France has economically does best. What could be the recipe?

Gallic among the largest fiscal otesánkům Europe. Expenditures of the state budget amounted to 57% of what France produced. Last year, the state budget deficit reached 4.5 percent of GDP, and even the biggest optimists believe that this year was to get to the three per cent limit, which is one of the Maastricht criteria. But France is not alone. Both criteria (ie, up to 60% of GDP debt and meet the 3% deficit, only four of the 17 euro area countries (as of 3Q 2012). Recent state budget recorded a surplus of French in the same year when he took office, President Valéry Giscard d'Estaing (ie 1974 ).Current account balance France is deeply in the red and rising unemployment, especially among young people, is moving to a record level since 1997. It is therefore possible to say that the French economy does best.

What recipe is Mr. Normal, as François Hollande nicknamed to this crisis? He wants to wait, then raise taxes to the richest 75%, increase government spending, particularly on social housing, education and healthcare. Increase tax rates above the maximum Laffer curve undoubtedly increase the tax choice.Unfortunately for France, however, will increase choice in Switzerland, Luxembourg and Belgium, which have their tax rezidenství moved more than 5,000 French citizens, business owners and top managers. French health care is among the best in the world. French education, especially schools like INSEAD and HEC also the world leader. Social policy is similar to as in Scandinavia. Unfortunately, it seems that François Hollande heard of decreasing marginal utility.

To be fair, I should mention the other side of the coin. French household belongs to nejspořivějším in Europe. Save more than 16.4% of their disposable income. French companies, especially in the food and luxury goods, manufactured goods in high demand all over the world. In emerging countries where there is a new layer of rich,   are willing to spend on such goods large amount of money. Quality education is capable of producing graduates who find jobs quickly.

France problem is structural, it is not possible to solve Keynesian procedures that are configured for cyclic problems. The first measure, which the French government would approve the introduction of a more flexible labor market, such as Germany managed in a similar mini and midi jobs available so you can find work, and high school graduates without experience. Another problem is the high French minimum wage (SMIC), which reaches nearly 1,500 Euros. Because of her work have difficulty finding the least qualified, who then express their dissatisfaction lit cars in the suburbs of French cities.

Another problem is the enormous social costs that discourage the people to look for work. Without work, the standard of living is higher than it would be if one or both parents worked. In children, it then creates the impression that it is possible not to work, which does not just educationally.

For a very unwise to consider tough statements François Hollande nationalization of the rich and some enterprises. From foreign investors who would like to invest in a country that does not respect property rights?

Germany, France reduced competition yet do not mind allows him to fully utilize their productive workers, which defeats the French company due to lower prices. The problem could be if rising unemployment meant that France would not be able to meet its obligations, which would mean economic disaster for the whole euro area and the world.


Vojtech Iron

Porfolio   Manager

Conseq Investment Management, Inc.


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