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France's Economic Challenges in 2013

MIN READJan 29, 2013 | 21:47 GMT

Video Transcript:

Recent statements made by the French minister of labor, Michel Sapin, opened a debate on the health of the French economy. In a radio interview on Jan. 27, Sapin said France is bankrupt and therefore the state needs to implement programs to reduce its deficit. Later, the French finance minister, Pierre Moscovici, denied that France is bankrupt but admitted that the financial situation in the country is worrying.

Moscovici showed particular concern regarding the country's debt. France's public debt is still well below the debt levels of countries such as Italy, Greece and Portugal, but it has risen by 26 percent since 2007 and currently accounts for roughly 90 percent of the country's GDP.

France is currently trying to reduce its budget deficit to around 3 percent of GDP this year, from 7.5 percent in 2009, but at the cost of unpopular tax hikes and spending cuts. These measures are already creating tensions within the ruling Socialist Party.

Beyond the situation of its deficit and debt, France is particularly concerned about its economy. In December, France's statistics office adjusted its prediction of GDP growth in 2012 to 0.1 percent, from 0.2 percent. The European Union, in turn, expects France to grow by just 0.4 percent in 2013, a forecast that puts the country very close to economic stagnation.

The French government is particularly concerned about rising unemployment, which is currently at around 10.5 percent of the workforce. This unemployment level is in line with the average for the eurozone countries, but is the highest level in more than a decade. In recent months many companies, especially in the automotive sector, announced significant layoffs as a result of the fall in economic activity.

Paris is also concerned about the loss of competitiveness of the French economy. Since late 2012, the government of Francois Hollande is in negotiations with the French unions to reform labor law. In early January, Hollande reached an agreement with three of the five major French unions to introduce reforms in the labor legislation. However, these proposals have yet to be voted in parliament, and the two unions that disagree with the reforms have said that they will try to block them, raising the prospect of street protests.

Despite these warning lights in the French economy, Paris still manages to borrow at low interest rates, which means that international markets consider France a solvent country. France's main economic challenge for 2013 will be to move forward with its reforms program, while trying to avoid a substantial increase in social unrest. As the economic crisis begins to impact France with more intensity, it will be more difficult for Hollande to find the balance between these two needs.

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