A Fear of Frexit
“While everybody is talking about the referendum on the United Kingdom’s membership of the European Union [Brexit] many are ignoring other problems which threaten the common goal of a powerful Europe,” the authors write in their article for the newspaper.
They then cite recent trends in the so-called ‘Frexit Index’ — a rating of the chance of France crashing out of the Euro within the next year.
For France, the odds tripled over the month of May, even though the recent indicator remains fairly low.
Among the key reasons for the increase are the present inability of the French administration to deliver reforms and the country’s political development which now sees a dominant position for Marine Le Pen’s National Front.
The recent polls suggest that 74 percent of the French expect that the Party Chairman and top candidate Marine Le Pen will reach the decisive second round of the presidential elections, the authors say.
One of the major concerns about France’s relationship with the Euro is the inability of their government to devalue their currency to help balance trade and “nourish” the economy.
According to the analysis, in order to adjust its currency to the economic strength of the country, France needs to devalue their currency by at least ten per cent — impossible within the straitjacket of the Euro — and to restructure their labor market.
Until the financial crisis, debts grew synchronously in both France and Germany. Since then however, Germany has taken a curve and is now heading for a debt ratio of below 70 percent. Meanwhile, France does not have any control of its growing debt, which could soon reach 100 percent of its economic output.
In other words, all the French people will have to work without pay for the whole year only to pay off the debt of their country.
Surprisingly, France’s struggle with its debt comes at a time when the rate of interest charged by the European Central Bank (ECB) has never been lower.
Rigid and Inflexible Labor Market
It is these reforms which have triggered violent protests across France, leaving the nation’s railways paralyzed, motorists suffering petrol shortages, and police under attack from rioters. Despite the disruption, some 46 per cent of French citizens polled still support the strike action.
However the labor market needs serious reforms, the authors say.
The “Code du Travail,” the 4000-page labor law of the country, regulates every single detail from the length of the bathroom breaks up to the size of the office window. This is the main reason why the labor market is so rigid.
For example, layoffs may last for many years and are very expensive.
The authors also suggest that the French labor law has also been behind the sharp increase in the country’s unemployment rate in recent years.
Should the French reform their labor market using the German model, the country’s potential growth could double from one to two percent.
And a more flexible labor code with longer working hours may help it along this path.
Eroding Industrial Base
France still has a firm place among the seven most industrialized nations (G7). In terms of economic performance, the country is in the sixth place of the global ranking, but recently it has fallen behind Britain.
And the industrial basis for its economic strength is eroding rapidly.
Compared with Germany, whose products are still in demand around the world, France has far less sophisticated industries.
The country has also benefited to a much lesser extent from the upturn in China. Its market share of global exports has also declined significantly.