Saturday, November 18, 2006

France Fails to Liberalize-France Fails to Grow

France have arguably the most statist economy in Western Europe. Labor- and product market regulations are among the worst in Europe and it has the second highest level of government spending to GDP after Sweden. And if you adjust for the extent to which Swedish government "spending" is taxation of transfer payments (scroll down to page 191) (as the money goes right back to the government this "spending" is pure accounting fiction), France actually have higher spending than Sweden too. And unlike Sweden and Denmark, where spending to GDP is trending downwards, the burden of government spending is rising in France.

And the political outlook is anything but good. When the government attempted to impose a modest liberalization of the strict labor laws, spoiled students protested and the government proved themselves to be the "cheese eating surrender monkeys" neocons accuse them of being. And as this The Economist story points out, the socialist opposition wants further spending increases.

Not surprisingly, the French economy performs very poorly. While one shouldn't read too much into the zero growth number for the third quarter (which largely reflected depletion the inventories built up in the previous quarter), the year over year growth is nevertheless significantly below the Euro zone average.

While France in recent years have outperformed Germany and Italy, this only reflected demographic factors (France's population is ageing much slower than in Germany and Italy). And at any rate outperforming Germany and Italy isn't much to brag about. Tax increases in Germany and Italy next year could perhaps ensure that France next year will once again outperform them, but this will only be because Germany and Italy performs worse, not because France performs better.


Post a Comment

<< Home