France: Fleeing to British shores

In past months many French have viewed the British shores as greener and better. They are leaving their country in scores because of France’s weak economy and high taxes.

The current trend was even accelerated by an ominous sign of despair: Early in November, Standard & Poor's downgraded France's long-term sovereign credit rating from AA+ to AA. The reason behind it: money or the lack of it or as Standard & Poor's wrote “the government’s inability to significantly reduce total government spending”.

So what went wrong in France?

To fight the war against household debt, the government has significantly increased taxes and therefore alienated most of the population against it. Some modest voices even fear a political radicalisation of the country. All this despite the fact that France is actually not doing that badly at all: It got through the post-2008 European financial crisis and economic recession fairly well. Its banking system is relatively stable and compared to many other Eurozone countries the economic loss is below average. France also has the advantage of some renowned global companies that have long recovered from the financial crisis like Danone, Schneider, L’Oréal and Air Liquide.

According to an analysis in the Financial Times, France’s issue is that its political leaders have not seized the crisis as a chance to make essential reforms to the state apparatus, the welfare system, the labour market and taxation. They are scared of the backlash this might cause as the French are renowned to stop their nation with extended strikes and revolts whenever there was an attempt for far-reaching change.

In an article in the British Telegraph economics professor Jacques Régniez said that in his opinion the reasons for the current economic despair stem from a bill passed by a former government, the socialist Lionel Jospin government, which had reduced the working week to 35 hours. “Where our competitors, especially the Germans, saw the need to keep prices and costs down, France spent money she couldn’t afford,” he said.

However, there is still a chance for France’s president François Hollande. As he already has the lowest popularity ratings for any president in the 55-year Fifth Republic, he might be alright kicking of some unpopular reforms that save the economy.

As the Financial Times concludes, “He still has a chance. If he fails to take it, the embarrassing gap between France and Germany in terms of economic performance and credibility as a leader of the Eurozone will simply yawn wider.”

http://www.ft.com/cms/s/0/16aaad5e-486f-11e3-8237-00144feabdc0.html#axzz2kU23yIcq

http://www.telegraph.co.uk/finance/10390571/france-hollande-taxes-socialist-farrage.html