The
Next Perfect Storm for the World’s Economy
France
could have problems nearly as great as those in Italy, where trouble
could drive it into a condition not unlike Spain’s
6
November, 2012
The
perfect storm of the U.S fiscal cliff, Greece and Spain that
threatens the worldwide economy in 2013 may be supplanted by a new
one. The International Monetary Fund warned that France could have
problems nearly as great as those in Italy, where trouble could drive
it into a condition not unlike Spain’s. Because of the size of
France’s gross domestic product and its position as the second
financial pillar of Europe after Germany, a deep recession there
would sharply undermine whatever chance the European Union has to
hold its own.
The
IMF 2012 Article IV Consultation — Concluding Statement on France
said
this:
The
growth outlook for France remains fragile reflecting weak conditions
in Europe generally, but the ability of the French economy to rebound
is also undermined by a competitiveness problem. As financial
stability risks abate, and with the prospects of a gradual resolution
of the euro area crisis, France’s competitiveness gap emerges as
the main challenge for macroeconomic stability, growth, and job
creation.
France’s
industrial sector could fall hopelessly behind those of Germany and
large nations outside the EU. The IMF went so far as to mention
France in the same breath as Italy and Spain.
The
difference in size between France, on the one hand, and Italy and
Spain on the other is considerable. The World Bank measured France’s
nominal GDP at almost $2.8 trillion in 2011. By the same yardstick,
Italy’s was $2.2 trillion and Spain’s $1.5 trillion. However,
France’s economy continues to grow, albeit slowly, while the other
two are in reverse as their GDPs contract.
The
trouble in France is not just based on GDP and competitiveness. Since
the start of the European crisis, France sometimes has been able to
effectively balance Germany in terms of the process of the bailout of
the eurozone’s weaker nations. France’s two most recent
presidents, Nicolas Sarkozy and François Hollande, have favored some
measures of tolerance toward national deficits as countries like
Greece and Spain try to overhaul their economies. And France has even
shown some support of stimulus programs to work along side of
austerity.
Deep
trouble in the French economy, and the way that would change the
debate on Europe’s future, would be much worse than the current
situation as its neighbors look for some means of financial support
beyond that tethered to extreme austerity. A stumble in France makes
a possible 2013 perfect storm more threatening than the one most
economists have concerns about now.
Douglas
A. McIntyre
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