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France's economic crisis


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France's economic crisis

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The French presidential election is about to be held – first round voting will be on 22 April. The polling is taking place under gloomy conditions, against a backdrop of financial and economic crisis.

In this special report by euronews business journalist Antoine Juillard, we set out to give the big picture of France’s economic and social position – from the decline of industry to the trade deficit, the state of public finances and purchasing power, and the number one concern of the French people: unemployment.

Last year, like the years before, was rife with social conflicts. Again, industrial workers paid a heavy price. In some cases, such as for lingerie maker Lejaby near the city of Lyon, a solution was found, but often things ended badly, such as at the automotive equipment maker Continental in the northern Picardy region. In Lorraine, workers at ArcelorMittal steel also joined the many thousands of anonymous unemployed.

There are now one million more job seekers in France than there were five years ago. It is drawing towards a three million total: ten percent of the active population.

The level of long-term unemployed in France is high. When a person reaches a certain age, the longer he or she stays out of work, the smaller the chances of getting back into it – squeezing incomes tighter and tighter.

Eric Heyer, with the ‘Observatoire français des conjonctures économiques’, said: “Financially there’s a jump. First it’s when you’re laid off and go from a working salary to unemployment benefits, and then a second jump when those benefits run out and you’re entitled to only the social minimum. Unemployment benefits in France last for 24 months. The crisis has lasted for more than 24 months, and so we’re seeing a lot of jobless going on to the minimum. This means we’ve come to an explosion of poverty brought on by the rise in long-term unemployment.”

One and three quarter million people were registered at the start of this year as having already been looking for work over a period of at least twelve months.

Officially, poverty rose between 2007 and 2010, affecting 13.5 percent of the population. The poverty income threshold in France is set at 950 euros per month for a single person.

The shrinking of industry in France got rid of 600,000 jobs over ten years. Some of these rematerialised in other countries. The necessity of moving these jobs somewhere else, or whether it is really possible are constantly in debate.

Jean-Marc Vittori, with daily newspaper ‘Les Echos’, said: “It can be in a company’s interest to relocate but it has to ask itself some questions. The cost of labour will have become more expensive, so other costs have to be lower. That can be for transportation or development – coordinating the tasks that have to be performed in the company differently. There has to be a serious assessment. In my opinion, relocating is not just about losing some of your jobs. It’s essential to create new jobs, jobs for tomorrow. That’s where I see the real question.”

France’s growth estimate for this year is half a percent, but the OECD, IMF and independent research organisation the OFCE say less – all reflecting faint prospects for improving employment.

Respectively, the latter are forecasting +0.3%, +0.2% and minus 0.2%.

With insufficient growth, purchasing power has little hope of increasing. It stagnated last year and is forecast to drop further. This is because of a clear rise in fixed, unavoidable spending for consumers.

Charles Pernin, the head of consumers’ association CLCV (‘consommation, logement et cadre de vie’), said: “What we call constraints are the things a household budget cannot get away from: for instance housing, energy bills and transportation. But there is also insurance, spending on health and communication. A lot of these markers have risen significantly, and so weigh in on budgets, especially for the most modest households.”

Inflation is not expected to be high this year but the rise in fixed spending is forcing consumers to cut back on other things, since incomes are not keeping pace. Another social trend clamping down on spending is family break-ups.

Jean-Marc Vittori said: “More and more couples are separating. When that happens, there are two rents to pay instead of one, two fridges to buy, two electricity bills to pay. All that on the same income as before means living less well. To compensate for that there would need to be strong progress in purchasing power, but we don’t have that for the moment, and a lot of French have the impression, sometimes wrong and often right, that their buying power is dropping.”

Logically, the French reduced their spending last year, by half a percent compared to 2010. That consumption fall reducing VAT revenues worsens a large national deficit.

There is also the external trade deficit. France is importing much more than it exports.

French industry is successful in selling its high-end products abroad, like aeronautics and armaments, and nuclear energy technology. But where France’s industry regularly loses market share is in medium and lower-range goods. In these sectors its competitors are far better placed.

Last year saw serious deterioration in the trade gap, to nearly 70 billion euros – 30 percent more than in 2010.

Thierry Pech, Chief Editor for ‘Alternatives Economiques’ monthly, said: “An economy that doesn’t export, or doesn’t as much as Germany, has to count on its own domestic market to make the machine turn. France’s economy depends a lot on internal consumption, like the US, where 70 percent of GDP is thanks to internal consumption. So, if that collapses, you lose a big factor in growth.”

The weak growth expected for 2012 combined with new budget deficit reduction goals will probably mean France’s executive power will have to make other efforts, such as cutting public spending and raising taxes.

Antoine Juillard concluded: “For the moment, the French government has no choice other than to be strict, just like its European partners. If it strays from the path, the markets which refinance it regularly will call it back in line. The ideal would be to mix growth with discipline, but the French government, same as nearly all the European governments, still haven’t found the recipe for that.”

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