French economy /crisis

French Economy and economic crisis

The economic crisis facing the world today is without precedent since 1929. Some experts such as LEAP, believe it is even worse, calling for global systemic crisis, with economic consequences but also social or geopolitical.
Initiated in mid 2007 with the collapse of U.S. financial system, it has spread to the whole world finance and the real economy. Bankruptcy of major financial institutions, however, considered unshakable, came the difficulties of other sectors of the economy such as automobiles whatsoever in the USA or elsewhere in Europe. Institutions such as General Motors (2nd global manufacturer of automobiles) are now on the verge of bankruptcy. Savings so far successful, such as Ireland, are now affected by the recession. International trade has experienced over the last two semesters a major setback. Around the world, growing unemployment and poverty, creating social unrest or political.
Faced with this situation, nobody knows when will the recovery. Opinions remain divided. Jean Claude Trichet, the governor of the ECB believes it is for next year, others are more pessimistic they perceive as best for 2012 and beyond.
As far as France is concerned, it is also exposed to this crisis whose consequences are already felt in the unemployment figures. There is a revival in strength theories for the decline of France and the impossibility of reforming our country. The reality is more complex. Is that we will see with a quick analysis of the French economy and its strengths and weaknesses. It will bring down a number of ideas and see what are the problems and the solutions that the government wants to make.


1) The French economy, a quick overview.

A) Sector Analysis

In a rural economy before the war, France has moved to an industrial economy, then a service economy. The population is divided as follows: 4% in the primary, 24% in secondary schools, 72% in services. Distribution of GDP: agriculture: 2.2%
industry: 20.3% services: 77.4% (2008)..

1) Agriculture

France is Europe's leading producer. It produces cereals, wine is the world's largest producer of dairy products, fruits and vegetables and meat. It is the largest producer of beef and poultry in Europe.
This sector is the basis for a food industry represented by powerful groups such as Danone and Yoplait (N ° 2 worldwide ultra fresh products)


2) Industry

France is the fifth industrial power the world, after China, the United States, Japan and Germany. In their business, several French groups occupy the first place even with their foreign competitors: the case of L'Oreal (cosmetics), Michelin (tires) and Alcatel (electrical equipment, telecommunications).
Although dominated by services, consulting firms, engineering firms and the tertiary technology, new types of industries, highly diversified, are performing in areas where the structures are adapted to market (aerospace, telecommunications, micro-computer), often in association with European partners. It is also large energy groups such as Total or Edf and environmental industries (SUEZ).
The car produces in the order of 5 million vehicles, with some 300,000 employees of large groups (PSA, Renault), but the jobs (subcontracting, equipment, etc..) Are estimated at some 2.6 million .
France is also a leader in the production of steel and aluminum.
With nearly 90% of firms with fewer than 200 employees, the French industry is not concentrated. What the big - or very large groups - live and thrive for many SMEs, are often subcontracting activities. This fabric is not satisfactory. The relocation of traditional industries (textiles, steel, automobile) have proliferated in recent years.


3) Services

If the service activities are an important part of the activity of France, they remain for some experts still insufficient compared to other countries like the United States, particularly in the field of human services. The share of services to individuals in GDP remains below 3%. According to economic experts English (CAE), the potential of this sector is two million extra jobs. Moreover, if France had the same rate of employment than the United States in trade, restaurants and hotels, it would have 3.4 million jobs. But we preferred to move towards improvements in productivity and increasing automation.

 
The whole sector has both large companies in the field of banking and insurance (BNP Paribas, Société Générale, Axa ...). These are among the largest employers in the sector.
The Paris Bourse is behind London in second place in Europe. It merged with Amsterdam, Brussels, the Portuguese places, the Liffe (London derivatives) and especially the NYSE (New York Stock Exchange). It enables companies to attract many investors, particularly foreigners. However due to a pension system refusing pension funds, pay systems, the savings mobilized remains lower than it could be. So about 46% of the CAC40 are owned by foreign investors. They are mostly residents of the euro area (20%) and Americans (16%) and UK (4%). Only 3.5% of the capitalization of the CAC 40 corresponds to "direct investment" of foreigners, ie with investments of at least 10%. The rest of the time these investments have no effect on corporate governance.

Change in trade also great groups that are internationalized as Carrefour and Casino. More than half the turnover of the sector is done by large surfaces, especially the French hypermarkets which are the inventors. The development of free service has an impact on employment. In their quest for ever greater profit, some even hypermarkets experimenting boxes fully automatic.

Tourism remains one of the highlights of France. It hosts almost 80 million tourists. It is the first tourist destination in the world and ranks 3rd in the world for revenue (around 45 billion euros).



B) Foreign Trade


In 2008, France was the fifth world power after the United States, Japan, China, Germany and the United Kingdom. (Source Financial Times 01/2008). It is the 5th largest exporter (behind Germany, China, USA and Japan) and the 4th importer behind the USA, Germany and China.
The foreign trade deficit in goods since 2004, with a deficit that is widening (- 5.4 billion euros in 2004 to 54 billion euros in 2008). The reasons for this deficit are the increase in oil prices and raw materials since 2000, the appreciation of the euro against other currencies (dollar, Yuan), and a deterioration in competitiveness.
The bulk of trade is with the European Union (63.5% of exports and 59.3% of imports).
The first partner is Germany.
France exports and imports mainly industrial goods (capital goods and intermediate goods). The negative balance in the balance mask good performance in some areas:
• Key sectors in surplus in 2006:
o the food (+8.9 billion euros),
o Auto (5.5 billion euros, against 11.6 in 2003)
o The capital goods (+7.4 billion euros).
o The tourism (10.1 billion euros)
• Main sector deficit: energy - 45.8 billion euros in 2006 which is double of 2003.

Trade with Germany and China, also explain the deficit problems of French foreign trade.


2) The problems of the French economy and the crisis


A) the deficit of the State


The crisis of 2007 came to amplify a structural problem of France, which is the deficit of public accounts. The deficit of the French state, which was around 40 billion euros in 2008 stood at over 50 billion euros. The forecast for 2009 is around 100 billion euros. Its debt is estimated at 1200 billion or 61.5% of GDP. It is clear that France can not meet the Maastricht criteria and the Stability Pact. This makes it difficult to implement policies to revive.
Faced with the crisis of the state has to make choices. As elsewhere, he initially refinanced the banks in order to unblock the financial system and allow the financing of enterprises. This recapitalization was 40 billion euros. To assist in the refinancing of banks has also secured loans from the interbank market to 320 billion euros.
When the crisis has spread to the real economy, he also implemented a plan to help the automotive industry. The French plan announced February 9 intends to grant 7.8 billion euros of aid to the sector, including 6 billion of loans at preferential rates for French manufacturers Renault and PSA Peugeot Citroen.
The introduction of reduced VAT on certain problem areas completes the device.
But these measures bring several issues in France. Unlike the USA there will be no or few in France to revive Keynesian policy, with major operations. A list of 1000 projects have been proposed, but many were already planned or involve minor operations generating few jobs. The bulk of French policy has turned towards a policy of the offer with the fiscal arrangements and assistance to businesses.
France is struggling to reduce its public expenditures (over 50% of GDP) and tax (45% of GDP).
Yet if she knew the leader of the Second World War to 1983, it has gradually shifted towards a liberal economy with a strong decline in the public sector with many privatizations from 1986. She also converted to monetarist dogma, like all western countries.

The deficit of the state is exacerbated by deficits in social protection is expensive.



B) social protection, labor law and unemployment.


The French Social Security is considered one of the best in the world. But it is very expensive (the budget represents 20% of the GDP of France). In 2008, deficit of 10.5 billion euros in 2009 there is a deficit of around 15 billion.
The crisis is partly responsible for this aggravation. Indeed, the French system is funded by contributions on wages paid by the employee for 25% and business 75%. With rising unemployment and stagnant wages revenues decline. On the other hand, expenditure on health, unemployment benefits and pensions are increasing.
These increase the social cost of labor is one of the highest in Europe. Some economists would be a cause of structural unemployment. These same economists also designate the working week of 35 hours as head of French problems.
The reality is more complex and different. According to a report by the IFA (French agency for international investment): "The French have a longer working week than, for example, in the U.S., Germany, Britain, Ireland, Belgium, The Netherlands, Scandinavian countries. The work week is 38 hours, superior to the average European Union 27 members. "Further:" The French have exceptionally high performance rates in terms of productivity. France offers one of the best hourly productivity rates in the world, with performances that are 20% higher than the European average.
One of the reasons that the French are so productive is their high level of training: 7% of France's GDP is spent on education and training. "" France is 2nd rank
in Europe in terms of hourly productivity. "


As against the labor law is very restrictive with strong protection of the employee and strict rules in terms of hiring and firing.
In early 2009, a sharp increase in unemployment. Since 2006 while unemployment declined in France, since mid 2008 it goes up sharply. Increases in December and January are the strongest recorded in 30 years.

Unemployment rate

Last known values
December 08 7.80%

September 08 7.20%

June 08 7.30%

March 08 7.20%


Source Department of Labor - as% of workforce


However, it was thought that the departure of baby boomers in retirement and the arrival of fewer young people in the labor market, the situation would improve.
This is not the case. The reasons are partly structural (labor law), but this is mainly an economic problem. The threats of recession (-1.7% for 2009), the decline of enormous corporate profits (-35% for companies listed on the CAC40) and the drop in orders and sales does not preclude the optimism. Moreover, the EU plans for France an unemployment rate of 9.8% in 2009 and 10.6% in 2010.
Redundancies and partial closures of businesses are growing, creating a number of social unrest. But again the reputation of France is not completely justified, because the number of days of strikes in the private sector in France is lower than that of the United States, Italy or Spain. The biggest strikes occurred in the public sector, where unions are strongest.
In France there are many unions and unionized few (7% of the population), mainly in the public service. The worsening economic situation and growing challenge, however, suggest an increased fear of social conflict during the year 2009.


3) Crisis and Solutions


A) A point on the crisis

While since the 80s, the European economies, including France, fought primarily against inflation, the crisis marks a return of unemployment. It is accompanied by lower prices (4% for the euro area and France in July to 1.6% and 1.2% in December 2008) which is a phenomenon of fear deflation in the coming months . This deflation is partly explained by lower oil prices and raw materials and a decline in economic activity more rapidly than expected.
Even if they are stronger than others due to diversification, (banks + investment banks) have been affected because they had bought many products. They have many more in other European banks as inter alia the German Hypo Real Estate, whose losses are estimated at 70 billion. Like other French banks have suffered a crisis of confidence that has caused problems for their refinancing. This crisis led to a restructuring move. Merger of the Caisse d'Epargne and Banques Populaires entry in the State capital, for example, due to problems DEXXIA.
This financial crisis led to a credit crisis for individuals and for the cash or business investment.
Vehicle manufacturers and their subcontractors have been hard hit because most cars are bought on credit. The drop in registrations has been undermined by environmental premiums. But overproduction has led to temporary or permanent closure.
Other areas affected are revealed, steel or shipbuilding.
The crisis of confidence has led to a decline in household consumption and a fall in investment.
Faced with this situation, the government has taken certain measures.



C) Economic Policy

During the past 30 years, the New Liberals and monetarists have prevailed without compromise on the global economy. The major crisis that we are challenging this. In the U.S., Obama has an economic program that Roosevelt n'auraita not disown: In addition to support plans for banks (Paulson 1 and 2) it is considering the nationalization of 9 of them, an extensive program of major works, a plan to support the education and the establishment of a social security system.
In France, the program for 2009 is more oriented to the Offer. The revitalization plan is a plan of 26 billion euros, of which only 1.6 for large projects ...
• € 11.5 billion of cash advanced to businesses in 2009: except for a few hundreds of millions of any interest saved by the companies, no net effect on their financial means.
• € 10.5 billion investment in infrastructure (€ 4 billion State, € 4 billion public enterprises, 2.5 billion € territorial): simple progress of projects already committed and whose implementation deadlines refer their effects rem on the end of 2009 or 2010.
• € 1.6 billion for housing (doubling of the loan, 70,000 additional housing units): real estate professionals expect no effect until 2010-2011.
• 220 million (premium scrappage € 1,000 for vehicles over 10 years)
  • 700 million for the exemption of social security contributions for hiring at the minimum wage, or € 180 per month in companies with fewer than 10 employees: windfall effect for employers who have hired anyway the others are to resume hiring as a return to growth.
• 500 million euros to improve the management of partial unemployment
• 760 million for a premium of 200 euros to grant social minimas next March

In fact nothing for the demand and consumption. Criticism in France from the left (package of 15 billion euros). France is limited by government deficits.
A national plan for is it enough? Should not a European? This is unlikely and even impossible because there is no European Treasury as the Federal Reserve to finance it. At best we can hope for a revival as the concerted rate cuts by the ECB is quite inefficient on the interbank market rates and therefore interest rates. For many the hope lies in China which is now the only country able to revive its economy and growth because it is based largely on increased domestic consumption.

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