Summary of an Article from the Economist

Over the past few years the French have always been able to make themselves feel better about their economy when they compared it to the German economy. Now with all the new statistics coming out they are no longer even able to use the Germany economy to console their selves. Germans are now looking upon their economy with confidence thanks to a new government and strong business prospects. Reports done over the past few years have shown that the weight of the public sector, high taxation, and a rigid labor market are slowing down the economy in France.

The economy in France is still not as bad as it seems. Consumer demand remains strong and unemployment fell again in December. France's economy is expanding as fast as Britain's for the first time in years. It is also expected to be equal with German growth. There is still a closing gap between Germany and France that shows significant change from the past few years. Over the past decade France's economy has done much better than the German economy. France has avoided outright secession and Germany has not been able too. Even though the American and British economies have made France's look a little dull, the French could always feel good that Germany's economy was lagging behind theirs. This is not the case anymore.

The signs of revival in Germany do remain a little suspect. Unemployment has risen and German retail sales were disappointing in December. But the German business-confidence index is at its highest in five years. The same index in France has been flat for three months in a row. Angela Merkel has brought talk of revival and enthusiasm to Germany. This is all while Dominique de Villepin's government, in France, is being scrutinized by the Socialist and people on the streets for policy blockage.

Economic reform has not gotten very far in France. The problem has not been deciding what to do, but actually doing it. A 2003 reform dealing with pensions lengthened the number years that public-sector employees must work before qualifying for full pensions. This reform did not address the very generous regimes of train drivers and electricity workers, two of the most strike-prone employees. The health reform that took place in 2004 has also been a disappointment. It was meant to control cost, but one banker predicts a major shortfall in the health insurance fund.

The size of the public sector has also put much stress on the economy. The civil-service payroll has grown by 13% since Jacques Chirac became president in 1995. This year will be the first time that almost all of the proceeds from France's income tax will be used to pay interest on public debt. De Villepin is gaining a grasp on the Labor market though. He is trying to lower the unemployment rate and loosen rules that make job creation difficult.

Due to the presidential election in 2007, de Villepin has begun an ambitious state-job creation plan. This plan would employ thousands of young people in job centers, sport stadiums, and town halls. The riots that took place last autumn have made the creation of jobs for young people a critical issue. As Germany has seen, falling joblessness and tough economic reforms do not go hand in hand. These issues must remain essential though if France wants to keep up with Germany and rest of the world.

"Gloom in France." The Economist 4-10 Feb. 2006, 45-4