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 essential themes.
However there’s all the time an financial context that can function as a significant consideration for a lot of voters.
And whoever finally walks into the Elysee Palace will face some troublesome, even intractable challenges.
The massive image is an economic system with a excessive lifestyle and excessive productiveness however some persistent issues.
The difficulty that stands out is unemployment. Shut to 3 million individuals who need to work and are in search of a job do not have one. The unemployment rate is 10%.
It isn’t as dangerous 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 beneath 6%, and Germany, the place it’s beneath four%. The determine for the UK is beneath 5%.
You would possibly suppose that unemployment will decline because the restoration from the eurozone’s recession continues. Many forecasters anticipate it’ll, however not by all that a lot.
The Worldwide Financial Fund estimates that it will likely be laborious to get unemployment down a lot beneath 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 more durable or much less engaging for employers to tackle new employees.
Listed below are some examples. The “tax wedge” is comparatively giant – that is the distinction between a employee’s take house pay and what it prices the employer.
There are lengthy and unsure procedures round dismissals, when an employer thinks they’re wanted. In fact there is a want to guard employees from unfair and arbitrary sackings, however many labour market specialists do suppose that in France the steadiness is incorrect and that it acts as a disincentive to hiring new employees.
It’s comparatively simple to get out of labor advantages and the IMF says the training system has didn’t sustain with the altering abilities wanted by employers.
There have been reforms meant to make inroads into these points, together with a bundle often called 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 additional time funds. Critics suppose it raises prices for employers, supporters that it protects employees and encourages employers to rent extra folks.
There’s additionally a function 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 – laws that kick in when a agency has 50 or extra workers that inhibit those who would possibly in any other case develop.
So she says France is comparatively missing in medium-sized companies – a selected distinction with Germany whose “Mittelstand” is usually 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 power system for instance – is sweet.
But it surely additionally displays the excessive value of using folks. If companies do not need to rent low-skilled folks as a result of it is too costly they usually spend money on gear or software program as an alternative, it makes the typical productiveness greater.
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 concern in France.
It is true the federal government’s borrowing prices usually are not excessive. One broadly used measure is the yield or return within the monetary market on authorities bonds or debt due for reimbursement in 10 years. It is beneath 1%, considerably higher than the eurozone nations which have (or just 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 charge of beneath zero, which signifies that monetary market traders need to 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 for the reason that flip of the century when it was lower than 60%.
The IMF says that fiscal dynamics may simply derail, if for instance financial development is lots weaker than anticipated. What it means by that’s that the debt burden may rise fairly quickly if weak financial development undermines tax income.
One other function of the French authorities funds is that the general public sector is among the largest.
Public spending final 12 months was 56.5% of GDP, the very best of any of the developed economies. The advantages embrace excessive ranges of public companies, however does additionally imply French folks and companies pay lots of tax.
One of many defining options of French financial life this century has been using 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 quite sluggish financial development did make some commentators wonder if which may have modified.
However you would argue that the shortage 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 referred to as unit labour prices (which think about each productiveness and the price of using employees).
So maybe France may need been extra aggressive with its personal forex. That mentioned, France is definitely not the eurozone nation the place that sort of concern carries essentially the most weight. And a few of the presidential candidates have concepts about additional home reforms to deal with that concern.