Fall of France II: How a Cockerel Nation Became an Ostrich

A Newsweek piece about the fall in France’s economic fortunes has infuriated the French. Pascal Rossignol/Reuters

Last March, the European Court of Human Rights ruled that being rude to the president of France could no longer amount to an automatic criminal offense. (This after a protester called the then-President Nicolas Sarkozy a "jerk.")

The judges ruled that the law, which dated back to 1881, neglected to take into account the demonstrator's right to freedom of expression.

The rule was revoked by French MPs in July. Yet freedom of expression still appears to be rather unwelcome when it comes to sizing up the economic reforms the European Commission is now demanding of France – reforms that paint a picture of a nation in denial, unnecessarily holding itself back from prosperity.

In an occasional paper released last year, the European Commission's Directorate General for Economic and Financial Affairs sounded the alarm, stating: "France is experiencing macroeconomic imbalances, which require monitoring and decisive policy action." The European Commission has given France's current president, François Hollande, until 2015 to push its fiscal deficit to 3 percent of the nation's gross domestic product. France closed out last year with a deficit of around 4.2 percent of GDP, according to a report from Goldman Sachs.

The European Commission report cited a deterioration in the country's trade balance and its levels of competitiveness taking place against a background of towering public debt. It concluded, "The need for action so as to reduce the risk of adverse effects on the functioning of the French economy and of the Economic and Monetary Union is particularly important notably given the size of the French economy" – one of the largest in not just the European Union, but the world.

It didn't have to be this way. France's economy stood out among its peers in the euro area when the economic crisis of 2008 broke. Among the European Union member states, France was one of the few to avoid recession in 2010 and 2011.

Since then, however, "the resilience of the country to external shocks is diminishing and its medium-term growth prospects are increasingly hampered by long-term imbalances," says the Commission report.

The turning point in the economy came in January 2012 when the first credit-ratings agency – Standard & Poor's – stripped France of its top AAA rating, along with some of the weakest economies in the EU: Italy, Spain, Cyprus and Portugal. Since then, not only have the other two major credit-ratings agencies, Moody's and Fitch, followed suit, but just before the holidays, S&P downgraded France again to a AA rating. Mon dieu!

S&P summed up Hollande's government's attempts at reforms as too feeble to boost the country's growth prospects in the foreseeable future. "Ongoing high unemployment is weakening support for further significant fiscal and structural policy measures," it said, noting that net general debt is expected to peak at 86 percent of output in 2015.

France's ratio of public debt to GDP has been on the rise for the past seven years, touching 94 percent of GDP in 2013, and is expected to continue upwards before peaking in 2016.

"The current situation cannot persist indefinitely," the bank stated, noting that while Hollande has largely relied on tax increases for most of its fiscal consolidation, "we think that the leeway for tax increases is largely exhausted. Moreover, the government has committed to focus on cutting public expenditures in the coming years. But it is unclear where or when this reduction will take place."

Even as Hollande promises that "each generation will live better than the previous one," he faces crushing pressure from the European Commission to bring public spending under control, which Goldman estimates at around 57 percent of GDP.

What would help France revitalize its trade and its economy? The bank suggests clarifying tax policy, undertaking a "spending review" that would make the state of public finances "more transparent to the general public," restore the country's competitiveness by "reducing labor market rigidities and labor costs" with an eye toward "rebalancing the economy from the domestic-oriented public sector to the export-producing sector."

Another thing that might help: the French not denying that their country is in a bit of a pickle.

"The Fall of France," a Newsweek story by the magazine's prize-winning Middle East Editor Janine di Giovanni, who lives in Paris, highlighted some of the challenges the country is facing – from the (much-debated) high cost of certain dairy products to the migration of France's more entrepreneurial-minded (who, we fully understand, are aware that once upon a time "entrepreneur" was indeed a French word, even if it has fallen into abeyance) received a cool receptions in, of all places, France.

Indeed, there's a lot of rhetorical mileage to be had by elaborately missing the point.

As one detractor pointed out, "If the elite are fleeing from France, how is it that three of the top six MBA schools for Fortune 500 CEOs are French?"

A good point. Indeed, since the Fortune 500 companies are all based in the U.S., why are so many top French business executives heading across the pond to make their fortunes elsewhere – rather than staying in France?

This is just one question avoided by the cockerel nation that has become the ostrich nation. As the French say, "Voir venir."

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