PARIS – France is gravely ill. So ill, in fact, that Standard & Poor’s recently cut its sovereign-credit rating – the country’s second downgrade in less than two years. The decision was accompanied by warnings that the budgetary and structural reforms that President François Hollande’s administration has implemented over the last year have been inadequate to improve France’s medium-term growth prospects. Now, the pressure is on for structural reforms covering everything from labor markets to taxation.
While the S&P downgrade was unexpected, it was not exactly shocking. The recent downturn in France’s industrial output has created large trade deficits, and is undermining the competitiveness of small and medium-size enterprises. Unemployment stands at about 11%, with a record-high 3.3 million workers registered as jobless in October.
At the same time, political crisis is impeding the government’s pursuit of difficult reforms. French leaders have demonstrated an inability to communicate effectively or apply past experiences in analyzing current threats. Instead, they are resorting to diversionary tactics by engaging in overblown rhetorical battles about minor controversies. But they cannot ignore their problems forever, and the consequences of delaying the reforms that France needs could be catastrophic.
And yet, viewed from a broader perspective, France’s problems are largely symptoms of a disease that is affecting the entire global economy (including the European Union’s southern members). In recent decades, unfettered capitalism has produced significant mutations worldwide.