November 13, 2012
The International Monetary Fund in its annual report on November 5th refers to the possible threat of competitiveness deficit that is impeding growth in France. It is emphasizing on the danger France could turn into similar condition as in Spain and Italy, where zero-growth levels pressed both to adopt austerity measures in order to control public deficit. Hollande is now faced with a complex issue: how will he be in position to implement its “social” promises for combatting tax evasion while securing that his economy could be revitalized through investments.
The IMF is pointing out that structural reforms in the labour market should be initiated and that France should start re-invigorating its commercial relations with other member-states putting aside the disfunctioning services sector, which is according to IMF the most vulnerable field pulling down competitiveness. It is also noted that France has no growth since October 2011, while unemployment rate is expected to surpass 10% during 2013.
Hollande is now faced with his electoral promises, as he used to underline his determination for bringing more jobs and more investments in the French market. Sarkozy left a completely dimantling field with no regulation, no prospects, and mainly with no growth plan. Hollande is now in harder position, as shortly after being elected is obliged to turn himself against the society: either adopting austerity politics to control public deficit, according to the IMF, or leaving economy completely vulnerable to external pressure. Both choices I believe are equally devastating for the society.
The problem with the French labour market is something relevant to almost every EU member-state except for Britain, and partly, for Germany. The French economic system was fundamentally based on a large and slow bureaucratic system with no flexibility in terms of effective tax monitoring mechanisms. In addition to that, investment plans to the French market were relevantly impeded due to chained bureaucratic processes and, accordingly, during the last twenty years France could not cope with the financial globalization as low pace of transactions led to a significant decrease of exports, from 6,3 % in 1990 to 3% in 2010.
Hollande, and previously Sarkozy, was trying to align his position with Chancellor Merkel in order to shape a common ground for the new European austerity politics. In other words, both were behaving with an alter ego aside: in domestic politics there were declarations for growth and social prosperity, whereas in European and global politics there was a clear shift towards more strict economic policy. This “cohabitation” of conflicting economic policy doctrines could not last more as there is now clear evidence that French economy can no longer balance between welfare and austerity. It is time to choose.
All predictions lead to the point that Hollande will now implement austerity politics, while few months earlier he used to be a robust denier of austerity and ready to lead the European Union outside the current deadlock. Now it is time for the truth, and furthermore, Hollande’s expected shift towards austerity is one more proof that major socialist leaders have no counter-plan and no alternative other than adopting harsh measures with no further prospects for the European society.Dimitris Rapidis