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 at all times an financial context that can function as a serious consideration for a lot of voters.
And whoever finally walks into the Elysee Palace will face some troublesome, even intractable challenges.
The large image is an financial system with a excessive way of life and excessive productiveness however some persistent issues.
The difficulty that stands out is unemployment. Shut to 3 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 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 may assume 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 will probably 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 staff.
Listed below 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. In fact there is a want to guard staff from unfair and arbitrary sackings, however many labour market specialists do assume that in France the stability is improper 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 bundle often known as the Macron legislation, named after Emmanuel Macron, one of many presidential candidates when he was financial system minister. The IMF has welcomed this however says extra is required.
Then there’s the 35-hour working week. It would not ban lengthy hours, however is a threshold which triggers additional 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 function of the French enterprise regulation and taxation that impacts the scale of corporations. Nicola Brandt from the Organisation for Financial Co-operation and Improvement (OECD) told the BBC that there is a threshold impact – rules that kick in when a agency has 50 or extra staff that inhibit people who may in any other case develop.
So she says France is comparatively missing in medium-sized corporations – a selected distinction with Germany whose “Mittelstand” is usually seen because the spine of the financial 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 nice.
Nevertheless it 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 they usually spend money on tools or software program as an alternative, it makes the common productiveness larger.
And whereas the extent of productiveness is excessive, the speed of enhance has slowed because it has in different developed economies.
Low-cost borrowing, large debt
The federal government’s funds are additionally a nagging difficulty in France.
It is true the federal government’s borrowing prices aren’t 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 beneath 1%, considerably higher than the eurozone international locations which have (or not too long ago had) extra urgent debt issues, equivalent to Spain, Italy, Portugal or Greece.
In reality, for some shorter time period borrowing the French Treasury has to boost the cash at a fee of beneath 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 enhance for the reason that flip of the century when it was lower than 60%.
The IMF says that fiscal dynamics might simply derail, if for instance financial progress is rather a lot weaker than anticipated. What it means by that’s that the debt burden might rise fairly quickly if weak financial progress undermines tax income.
Foreign money competitiveness
One other function of the French authorities funds is that the general public sector is without doubt one of the largest.
Public spending final yr was 56.5% of GDP, the very best of any of the developed economies. The advantages embody excessive ranges of public companies, however does additionally imply French individuals and companies pay plenty of tax.
One of many defining options of French financial life this century has been using the euro because the nation’s foreign money. France has not been on the eye of the monetary storms that raged within the early a part of this decade, although the debt degree and moderately sluggish financial progress did make some commentators ponder whether which may have modified.
However you may argue that the dearth of a separate nationwide foreign money has disadvantaged France of a method of restoring competitiveness if it does decline. Merely permitting the foreign money to fall can generally 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 staff).
So maybe France might need been extra aggressive with its personal foreign money. That stated, France is actually not the eurozone nation the place that form of concern carries probably the most weight. And among the presidential candidates have concepts about additional home reforms to handle that difficulty.