As French voters go to the polls to elect a brand new president, the nation’s relationship with the European Union, immigration and terrorism will all be necessary themes.
However there’s all the time an financial context that may characteristic as a significant consideration for a lot of voters.
And whoever finally walks into the Elysee Palace will face some tough, even intractable challenges.
The massive image is an economic system with a excessive lifestyle and excessive productiveness however some persistent issues.
The problem that stands out is unemployment. Shut to a few million individuals who wish to work and are on the lookout for a job haven’t got one. The unemployment rate is 10%.
It is not as unhealthy as some eurozone neighbours, however it’s above common for the area and much worse than, for instance, the Netherlands and Austria, the place it’s under 6%, and Germany, the place it’s under four%. The determine for the UK is under 5%.
You may assume that unemployment will decline because the restoration from the eurozone’s recession continues. Many forecasters count on it’ll, however not by all that a lot.
The Worldwide Financial Fund estimates that will probably be onerous to get unemployment down a lot under eight.5%.
That judgement displays what the IMF calls “deep rooted structural rigidities”, elements that make the nation’s labour market much less adaptable. They make it tougher or much less enticing for employers to tackle new staff.
Listed here are some examples. The “tax wedge” is comparatively giant – that is the distinction between a employee’s take residence pay and what it prices the employer.
There are lengthy and unsure procedures round dismissals, when an employer thinks they’re wanted. After all there is a want to guard staff from unfair and arbitrary sackings, however many labour market specialists do assume that in France the steadiness is flawed and that it acts as a disincentive to hiring new staff.
It’s comparatively straightforward to get out of labor advantages and the IMF says the schooling system has did not sustain with the altering expertise wanted by employers.
There have been reforms supposed to make inroads into these points, together with a package deal often known as the Macron regulation, named after Emmanuel Macron, one of many presidential candidates when he was economic system minister. The IMF has welcomed this however says extra is required.
Then there’s the 35-hour working week. It does not ban lengthy hours, however is a threshold which triggers extra time funds. Critics assume it raises prices for employers, supporters that it protects staff and encourages employers to rent extra individuals.
There’s additionally a characteristic of the French enterprise regulation and taxation that impacts the scale of companies. Nicola Brandt from the Organisation for Financial Co-operation and Growth (OECD) told the BBC that there is a threshold impact – rules that kick in when a agency has 50 or extra workers that inhibit people who may in any other case develop.
So she says France is comparatively missing in medium-sized companies – a specific distinction with Germany whose “Mittelstand” is commonly seen because the spine of the economic system.
France does have very excessive ranges of productiveness, a measure how a lot every employee produces.
There are some good causes for that. France has extremely expert managers and engineers. Infrastructure – the transport and vitality system for instance – is nice.
But it surely additionally displays the excessive value of using individuals. If companies do not wish to rent low-skilled individuals as a result of it is too costly and so they spend money on tools or software program as a substitute, it makes the common productiveness larger.
And whereas the extent of productiveness is excessive, the speed of improve has slowed because it has in different developed economies.
Low-cost borrowing, massive debt
The federal government’s funds are additionally a nagging subject in France.
It is true the federal government’s borrowing prices will not be excessive. One extensively used measure is the yield or return within the monetary market on authorities bonds or debt due for reimbursement in 10 years. It is under 1%, considerably higher than the eurozone international locations which have (or lately had) extra urgent debt issues, comparable to Spain, Italy, Portugal or Greece.
In reality, for some shorter time period borrowing the French Treasury has to boost the cash at a price of under zero, which signifies that monetary market buyers should pay the state to take their cash.
However the French authorities’s debt burden is pretty excessive, near 100% of annual financial exercise or GDP. That is a marked improve because the flip of the century when it was lower than 60%.
The IMF says that fiscal dynamics might simply derail, if for instance financial development is so much weaker than anticipated. What it means by that’s that the debt burden might rise fairly quickly if weak financial development undermines tax income.
One other characteristic of the French authorities funds is that the general public sector is likely one of the largest.
Public spending final yr was 56.5% of GDP, the best of any of the developed economies. The advantages embrace excessive ranges of public providers, however does additionally imply French individuals and companies pay a variety of tax.
One of many defining options of French financial life this century has been the usage of the euro because the nation’s forex. France has not been on the eye of the monetary storms that raged within the early a part of this decade, although the debt stage and reasonably sluggish financial development did make some commentators wonder if that may have modified.
However you could possibly argue that the dearth of a separate nationwide forex has disadvantaged France of a way of restoring competitiveness if it does decline. Merely permitting the forex to fall can typically obtain that.
France does certainly have an issue with competitiveness, as proven by its export efficiency and measures of what are known as unit labour prices (which think about each productiveness and the price of using staff).
So maybe France might need been extra aggressive with its personal forex. That mentioned, France is definitely not the eurozone nation the place that type of concern carries probably the most weight. And a few of the presidential candidates have concepts about additional home reforms to handle that subject.