As Europe’s debt crisis worsens, the question is being asked: could it engulf France, the euro zone’s second largest economy?
Even as Paris rushes through spending cuts and tax hikes a report by economic think take the Lisbon Council and Germany’s oldest private lender Berenberg Bank raised concerns about France’s ability to make the necessary changes to its economy before next May’s presidential election.
Holger Schmieding, chief economist of Berenberg Bank said: “Alarm bells should be ringing for France.”
“Among the six euro zone countries with a AAA rating, France achieves by far the lowest ranking in the study’s fundamental health check,” Schmieding said. “The results are too mediocre for a country that wants to safeguard its place in the top league.”
The assessment was released as new growth figures showed the French economy rose by 0.4 percent between July and September picking up from the previous quarters 0.1 percent fall.
Consumer spending during that period rose by 0.3 percent, but more worrying was the revelation that investment by French companies slipped by the same percentage.
Economist Mathieu Plane explained why that is significant: “Less investment means less future growth and so fewer jobs, and above all it shows that we are in a in the midst of a slowdown with the possibly or recession in the fourth quarter. So the French economy is not on the road to recovery.”
The Lisbon Council and Berenberg Bank report recommends France slash what they calls its “bloated” government spending given that the deficit is at seven percent of GDP and debt at almost 82 percent.
Italy’s troubles also threaten to spill over on to France as French banks are among the biggest holders of Rome’s more than two trillion euro public debt mountain.
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