FRANCE’s FATE MATTERS TO EUROPE

France’s fate matters to Europe and the world at large. France is the world’s fifth-largest economy (and the second-largest in Europe, after Germany), so what happens in the country impacts growth for the region overall. It is critical for all of Europe for France to get its act together and its economy moving. That, however, is not happening.

The French economy has been in gradual decline for years, without any President or administration having done anything decisive about it. But now, ignoring the problems is no longer an option.

The mood hanging over the country is depressed. France is in the midst of the biggest crisis of the Fifth Republic. It feels as if the French model had reached an end stage, not just in terms of the economy, but also in politics and society. A country that long dismissed its problems is going through a painful process of adjustment to reality and, can now expect to be issued warnings by the European Commission and prompted to implement reforms.

France’s growth in 2014 is expected to be only around 0.5%  and  growth in 2015 is not expected to be much above 1.0 percent. The lack of growth means France’s public deficit will now top 4 percent of GDP in 2014, missing a government target of 3.8 percent. It also increases the possibility France could miss a key 2015 EU deficit target, leaving it at risk of sanctions from the 28-nation bloc. Many in the European Union have voiced exasperation over the past years at France’s repeated failure to meet fiscal targets and have asked for deeper reforms. The country has already benefited from a two-year reprieve to meet the 2015 target.

Only minimal progress on reforming the French economy have been made that could bolster growth and improve its competitiveness. Without further reform, the possibility remains that France could end up like its debt-laden neighbors – punished by markets with rising borrowing costs that could drag France into crisis. If France fails to heed these calls for reform, market doubts about the country’s solvency may also start to intensify.