/Euro Crisis: Could France be next?

Euro Crisis: Could France be next?

With all European eyes on Greece, with Spain and Italy in the periphery sight, a lack of financial reforms in France may escalate the crisis even further, threatening the Eurozone. Unrest spreads within the European Parliament as the Commission continues its monitoring business.

On November 16th, British magazine the Economist dedicated the front page to a drawing of baguettes arranged in the fashion of a bomb. This was followed by a 14-page special on how poor economical policies and a lack of reforms in France are threatening the EU and the Eurozone.

The reactions from the French government were swift: Minister of Industrial Renewal Arnaud Montebourg compared the articles to a satire magazine and Minister of Finance Pierre Moscovici called the conclusions absurd and groundless.

French president François Hollande and president of the European Commission José Manuel Barroso – a pair that have the chance to get to know eachother in the comming months.
Picture: The European Commission

Though it is easy to dismiss the reports as sensationalism, it might be worthwhile to take a look into the French finances. This shows an annual budget deficit at around 4.5% of the Gross Domestic Product (GDP) and a public debt of almost 90% of the GDP – around 1.8 trillion Euro. Both well above the guide lines of the EU Stability and Growth Pact.

– I agree that the Economist is a bit one sided, but the classical French reaction is that this is a national issue. The problem, as we have seen with the crisis in other countries, is this will affect all of the Eurozone. France has to get used to Europe having a look at their economy. It is not French sovereignty anymore, says Bas Eickhout, Dutch member of the European Parliament for the Group of the Greens/European Free Alliance.

Devastating potential
He says that while these views have not been mainstream within the European Parliament until now, more and more are starting to look cautiously towards France. He points out a rigid pension system and low labour productivity with high wages compared to the output of the work done. A lack of reforms on these areas is leaving the French economy vulnerable and may ultimately lead France into a situation like the current unstable situation in Spain and Italy.

– Worst case scenario, this will have a devastating effect. France is crucial in the EU; they are playing a pivotal role both economically and politically. If France gets in these kinds of problems this will certainly also impact the political balance within EU. This will shift the power even further to the north and that will absolutely be dangerous, says Bas Eickhout.

Commissioner Olli Rehn and spokesperson Simon O’Connor adressing the press in Brussels.
Picture: The European Commission

France vows to turn the tide
In talks with the European Commission and Olli Rehn, European Commissioner for Economic and Monetary Affairs and the Euro, the French government has committed itself to alter the situation and combat the escalating deficits, so that the numbers once again come below the EU guide lines.

– Commissioner Rehn has welcomed the government’s commitment to bring the deficit below 3% of GDP in 2013. He has also welcomed the recently announced intent to boost competitiveness and employment, which is broadly in line with the Commission’s specific recommendations for France, says Simon O’Connor, spokesperson for Commissioner Olli Rehn.

Brave actions are needed
The recommendations, Simon O’Connor mentions, are one of the tools the Commission have at hand to influence economic policy in the Member States, as it is monitoring the member states and is putting out advices and recommendations. As the Commission has no direct power on this issue, it is entirely up to each member state, whether it will follow the recommendations or continue business as usual.

– France has repeatedly stressed that is fully committed to respect the requirements of the Stability and Growth Pact and the Commission will closely monitor the evolution of the French public finances in the coming months, says Simon O’Connor.

With the French promises of change and the growing focus from the European Commission, the worst case scenario does not seem a definite future. But as with everything, the promises must be followed by actions. And the changes included there might proof hard to swallow for the French public.

I think French politicians are slowly starting to realise that they need to reform. The big issue is how they are going to tell the people. Are they brave enough to tell this story? That will become the bottom line. If president Hollande does not dare to do so, then the crisis will hit France hard, says Bas Eickhout.