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Why the French economy is in need of reform?

Analysis

Europe’s engine is starting to sputter. This week’s slide in Germany’s business confidence index to a 19-month low shows that the best part of the German upswing is over, says Ralph Atkins in the Financial Times.

A survey reflecting the steepest fall in eurozone service industry growth in two years, thanks to the embattled financial sector, also bodes ill. Businesses are facing higher borrowing costs amid the credit squeeze, and lower confidence could crimp investment and hiring, in turn undermining consumption. And the rapidly rising euro threatens the continent’s buoyant exports. RBS has now reduced its 2008 eurozone growth forecast to 1.7% from 2.1%.

In France, meanwhile, economic worries extend beyond a regional slowdown. Last week prime minister Francois Fillon said France was “bankrupt” and would keep sliding down the global growth league unless it got a grip on its finances: France “has not passed a balanced budget in 29 years. This can’t go on.” European Central Bank president Jean-Claude Trichet also took a dim view of the public finances, noting that France’s massive and unreformed state sector is the biggest in the EU, consuming 53% of GDP. So is anything being done about it?

French economy: what next?
Not much. The 2008 budget is a case of “plus-ca-change”, said Pierre Briancon on Breakingviews.com. “France will remain a big spender” next year and taxes will be slightly lower, so the budget deficit will stay “too high”. There has been scant progress on revamping the bloated and inefficient state apparatus – crucial to lowering spending and boosting long-term growth– although not replacing a third of retiring public servants is at least a step in the right direction. We’re still waiting for Nicolas Sarkozy’s “la rupture” – the break from the past he promised in his presidential campaign. (moneyweek.com)

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