Hollande says debt crisis is 'over.' But is France really out of the woods?
| Paris
French President Fran莽ois Hollande assured his hosts on a visit to Japan聽over the weekend that Europe was a safe place to invest.
"What you need to understand here in Japan is that the crisis in Europe is over," he said.
Indeed, the drama that began in 2009, with a debt crisis that required bailouts for several countries, doubts about whether Greece could stay in the eurozone, and even more doubts about whether the entire project itself might implode, has eased.
But it鈥檚 far from over, and in many ways it鈥檚 a lack of suspense today that many observers say spells trouble 鈥� perhaps first and foremost in France itself.
The country entered into recession in the first quarter of the year. Unemployment sits at nearly 11 percent, with no signs of easing downward, despite President Hollande鈥檚 pledge to lower it by the end of the year. And France has gotten urgent warnings from the European Union and International Monetary Fund that it must reform its pension system and labor laws to increase its sagging competitiveness.
To be sure, France is much better off than its neighbors to the south. Even if its unemployment rate refuses to budge, it鈥檚 still well under half that of Spain, which sits at a staggering 27 percent. But observers say that is precisely the problem, and that France is at a crossroads today.
鈥淲e don鈥檛 have a crisis like the Mediterranean countries, but if you project one or two years, France could be like Spain or Portugal,鈥� says Nicolas Bouzou, an economist and head of Asteres Consultancy in Paris.
But Hollande has not communicated a sense of urgency 鈥� underscored by his comments over the weekend. 鈥淭he crisis in France is not strong enough," says Mr. Bouzou. "In France, people are living quite comfortably. They don鈥檛 understand the necessity of change.鈥�
He adds: 鈥淔rench life is not a stimulus to change."
Need for reform
French unemployment grew to 10.8 percent in the first quarter of the year, growing for nearly two straight years, according to national statistics.
Its unemployment rate is better than that of the EU on average, which is at a record 12.2 percent. But it sits in the middle of humming northern economies, like that of Germany, and ailing Southern Europe, and its economy could go either way.聽
The IMF, in its recent annual assessment, said that without economic reform, the gap between France and other European countries could increase. 鈥淲e see deep structural issues affecting growth potential in France due to loss of competitiveness,'' said Edward Gardner, the chief of the IMF's mission to France.
And the European Commission wrote, in its recent country-by-country recommendations, that high labor costs and a generous pensions system require urgent reforms. 鈥淔rance鈥檚 competitiveness remains a significant challenge, as the strong erosion of its export markets shares in recent years shows.鈥�
In France, where the retirement age is 62, and the workweek is 35 hours, it is hard for companies to fire workers, and those dismissals often result in lengthy lawsuits. Social spending as a percentage of GDP is the highest of any country in the eurozone.
The European Commission recently gave France, along with other countries, two additional years of breathing space to get the deficits to below 3 percent of GDP. 鈥淭his extra time should be used wisely to address France鈥檚 failing competitiveness, as France鈥檚 enterprises have suffered a worrying loss of competitiveness in the last decade, indeed we can say in the last 20 years,鈥� European Commission President Jose Manuel Barroso聽said.
Resistance to change?
But Hollande said the commission could not 鈥渄ictate鈥� what France does, even as his government eyes pension reform to cut down on spending, with a panel review expected in days. 鈥淎s far as structural reforms are concerned, especially pension reforms,鈥� he said, 鈥渋t is up to us, and us alone, to say which is the best path to attain this objective.鈥�
The social model of France dates back to the close of World War II, but demographic shifts have overburdened it. In the 1960s and 1970s, there were far more workers than those retired. 鈥淏y the 90s, the situation was totally reversed,鈥� says聽Alexandre聽Kateb, professor of economics at SciencesPo.聽
But the French, he says, fear a major overhaul to their system.聽When presidents have attempted to push through social reforms in the past, the French have taken to the streets. When Hollande鈥檚 processor Nicolas Sarkozy raised the retirement age from 60 to 62 in 2010, hundreds of thousands protested.
鈥淧eople still have this memory of the 鈥榞olden age,鈥� when year to year benefits were growing and children were living better,鈥� he says. 鈥淣ow people are seeing their children live worse than they did.鈥�
Jan Techau,聽director of Carnegie Europe in Brussels for the Carnegie Endowment for International Peace, says that French leaders on the left and right in France, both in business and government sectors, know that France needs drastic reform. 鈥淏ut that kind of conviction does not find any correspondence in the wider public," he says. "And the president is too weak to mobilize the forces needed.鈥�
Hollande鈥檚 popularity sits at just 26 percent.
'Where France goes, there goes the EU'
Mr. Kateb says Hollande has scored two successes: a tax credit to incentivize hiring and a labor law to reduce costs of firing. But many observers, inside and outside France, say this does not go far enough, fast enough.
France is still considered a safe haven by investors; behaviors of the market and long-term interests rates do not reflect a sense of demise, says Bouzou.聽
But if markets aren鈥檛 worried, political observers are.聽Constanze Stelzenmueller, a senior transatlantic fellow with the German Marshall Fund of the United States in Berlin, calls France's slow pace of reform 鈥渢he single biggest threat to the future of the EU."
Its economy is the second largest in the EU, after Germany's, and France is a pillar, both politically and financially, of the entire EU project. 聽鈥淚鈥檓 not worried about Greece, or Italy, or the Brits, I鈥檓 worried about the French,鈥� she says. 鈥淲here France goes, there goes the EU.鈥�
