France’s Path Not Taken

Until recently, the French economy outperformed many EU countries. But now France is one of Europe’s laggards, growing only slightly faster than Italy and Portugal, and slower than even Germany, mainly owing to a hostile environment for small and medium-size firms.

The new president of France, be it Nicolas Sarkozy or Ségolène Royal, will face a tough challenge when it comes to putting the French economy back on its feet. While the world economy is booming for the fourth consecutive year, with a historically unprecedented growth rate of about 5%, the French economy is limping. In 2006, it grew by only 2.2%, while growth rates of only 2.1% and 1.9% can be expected for 2007 and 2008, respectively, according to a recent forecast by the German Economic Research Institutes. This is significantly below the average of the old EU countries for these three years – 2.7%, 2.6%, and 2.4%, respectively.

France is currently one of Europe’s laggards, only slightly ahead of Italy and Portugal. Even Germany is performing better. With a growth rate of 2.7%, the German economy clawed its way back to the average of the old EU countries in 2006, and it can be expected to grow at 2.4% in 2007 and 2008, far faster than France.

France’s meager growth is surprising. Until recently, the economy was doing fairly well, outperforming many EU countries. While Germany grew by only 14% in the ten years from 1995 to 2005, ranking as Europe’s “vice-laggard” next to Italy, France grew by 23.6%, which was nearly the old EU countries’ average of 24.3%. In 2001, France’s gross national income per capita overtook that of Germany, and is now 4% higher. And yet recent growth figures seem to have reversed this trend for the time being.

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