France Faces an Economic Emergency

France is the second largest state in the Eurozone after Germany. Eurozone is facing an extended economic crisis. This is because the PIIGS economies i.e. Portugal, Ireland, Italy, Greece and Spain are facing an almost imminent meltdown. Each of these countries has a debt to GDP ratio of over 100%, which is considered to be catastrophic. The point is that all these countries, the Eurozone and in fact the entire world is counting on France to bail its fellow members out. However, the reality seems to be very different. France, itself has a massive 92% debt to GDP ratio. In other parts of the world, this ratio would have set off alarm bells. However, in the Eurozone, it is considered to be a conservative number!

France’s President Francois Hollande declared a state of economic emergency. This has sent chills down the spine of Europe as well as the whole world. France is considered to be a developed economy. If it starts tumbling down, critics fear that it may spark off a domino that would almost be impossible to contain.

France Government’s Alarming Statistics

  • The government of France is one of the most socialistic in the world. The French law has been drawn to preserve the rights of the worker. However, given the world has become a borderless state, France now faces chronic unemployment. Statistics reveal that more than 27% of the French youth are unemployed. This is probably the single largest factor that has prompted Hollande to declare a state of economic emergency.
  • France has been running a deficit for decades now! The last time France had a balanced budget was four decades ago i.e. in the 1970’s. It takes no genius to figure out that if a government has been running up debt for 40 straight years their economy is likely to crumble any second.
  • The government of France almost singlehandedly drives the economy of France. It is the biggest economic actor in France. The state’s contribution to the total GPD is 56.5%. This means that the government of France alone accounts for more expenditure than rest of the French private sector combined! Such situations are usually found in socialistic countries like North Korea and Cuba and we can say with certainty that those states cannot be called economically prosperous. With rising debt on the French government, they might be forced to cut down some of the expenditure. If they do so, the GDP will fall further causing an even graver crisis!
  • Consumer Confidence

    Economists all over the world agree that consumer confidence is by far the best metric to predict future economic circumstances. This may be bad news for France. This is because over 80% of the French population believes that the French Republic is bankrupt. They believe that joining the Eurozone is the real reason behind this bankruptcy. This has attracted many people to far right parties that believe exiting the Eurozone and drawing a sovereign and economic boundary in the only way out for the French economy. Any such measures seem unlikely until Francois Hollande is in power. However, one cannot comment on what the situation might be later on!

    Refugee Crisis

    To add to the already worse economic woes, France is also facing a refugee crisis. Migrants from Syria are coming up in large numbers and settling in France. First this causes the law enforcement and rehabilitation costs to go up. Secondly, it also causes increased competition for the already non-existent jobs in France. Unemployment in France is what caused Hollande to issue an alert calling it an economic emergency. The refugee unrest might add to the social unrest and worsen the situation.

    Bloated Public Sector

    The French state has excessive employees. Almost 2 million employees are on the French payroll and more are about to be added. Also, the French state provides some of the easiest working conditions in the world. For instance, 35 hours is considered to be a workweek! That is at least 30% short of what the rest of the world calls a work week.

    The public sector situation in France bears a scarily striking resemblance to Greece. Francois Hollande was elected to power based on his promises to not allow layoffs and austerity. Therefore, it is unlikely that the French will take any preventive measures. Instead, the more likely situation is temporary overspending by the French state which might later induce a complete breakdown.

    Taxing Rich People

    The French President has been ramping up the taxes on the rich to subsidize and support his socialistic ambitions. It is believed that his plan is to tax the rich to make the French government’s situation better. That might be an unlikely solution. It has already caused a flight of capital. Around 2% of the French capital has been moved out of the country in 2 months as President Francois Hollande announced his plans. The rich are well versed with moving their money out of troubled states and it would be safe to say that Hollande has no chance of making this plan work.

    France’s Employment Rules

    The root cause of the problem is the excessive labor friendly employment rules in France. Companies are hesitant to set up shop given that the rules are stacked against them. The French government has recently changed these rules. This means that companies in France can lay off employees without massive severance packages. This initiative led by the government has created more favorable results than the others.

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