France is the ‘sick man’ of Europe, says EU think-tank


A controversial study by The Lisbon Council, a Brussels think-tank, says France is the sick man of Europe and singles out resistance to change as being responsible for a large part of the country's woes.

The Lisbon Council's latest report, the “Euro Plus Monitor”, published last week, is largely optimistic on the eurozone's ability to recover from the global financial and economic crisis, except for France.

Unlike many other think-tanks who are very concerned about Italian debt, which is set to reach 134% of its GDP in 2014, the Lisbon Council is convinced that the country has got what it takes to get out of the crisis.

But its assessment of the French economy is much less positive.

“Not much is going on in France," said Holger Schmieding, a German who is the lead author of the study and economist-in-chief at the Berenberg bank.

“The unemployment rate is excessively high and the planned tax raises are not a solution to get our of the torpor in which France finds itself,” he told

The lack of reform is also fuelled by the political situation, dominated by the rise of the far right Front National in next years' EU election polls.

Pensions and labour market

Like the IMF and the European Commission, the German economist believes that the labour market and the pension system must be reformed more deeply to improve France's competitiveness.

Earlier in May, the European Commission urged France to push ahead faster with economic reforms, in return for being granted two more years to bring its budget deficit below the EU limit. The EU executive told Paris to cut labour costs, reform its pension system and open up its protected markets in exchange for the two-year respite.

>>Read: France placed under EU reform scrutiny

“The labour cost in France is higher that the European average, it is a fact, but other countries which faced this problem in the past found a way to adapt themselves, like Portugal. In France it’s impossible; every draft reform ends up with street protests," the new report said.

Olli Rehn, the EU Commissioner for Economic and Monetary Affairs, who attended the presentation of the study in Brussels, shares the same view. “France has a tendency of increasing the taxes instead of going for structural reforms, which is not good for growth," Rehn said on 3 December in Brussels.

In 2011, the same study sent alarm bells ringing in France.

The Lisbon Council's Euro Plus Monitor operates in a different way from the usual analysis and rating agencies, because it looks more into a country's ability to reform.

According to their ranking, which assesses the “global health” of the countries, France is 16th, behind Spain but in front of Greece, Italy and Portugal.

“If the trends go on, France will be ranked last in three years,” the report warns.

It is mostly in terms of structural adjustments, which measure the evolution of the economy, that France shows bad results, partly because there is no major pressure applied on the country. The Commission's recommendations on economic reform are seen as too soft and there is no Troika to impose reforms – and no reason to send one since the deficit is still manageable, at 4% of the country's GDP.

Parallel with 2000’s Germany

“France is today a little bit like Germany in the years 2000,” Schmieding concludes. Germany was never really in a crisis but went through a period without employment creation and very little growth until Gerhard Schröder implemented tougher reforms in the second part of his mandate”.

That is exactly what the economist wishes for president Hollande: to be the French Schröder.

In reaction to the economic and financial crisis, economic surveillance of member states has been enhanced in several steps.

The new elements and annual schedule of surveillance also required an adaptation of the scope and frequency of European Economic Forecasts.

Under rules that took effect in autumn 2012, the Commission must provide three forecasts - the traditional spring and autumn editions and a winter forecast to be published in the beginning of February.

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