Macron faces the mammoth job of reviving the French financial system

This performance is all the more surprising given that from an Anglo-Saxon economic perspective, France does just about everything wrong.

It has a huge state sector, with a corresponding tax-take, amounting to 47pc of GDP, which is high by international standards; the government regularly intervenes in the working of the economy; the country is a closet protectionist against foreign suppliers; and the workforce is militant, with a high number of days lost to strikes.

So, given all this, how come that France does so well? Over the years I have proffered a number of possible answers, although I do not find any overwhelmingly convincing.

One of the best, I think, is that France is a naturally robust country, blessed with a rich and varied environment and a wonderful agricultural base, beautiful old towns and countryside, making it, amongst other things, extremely attractive for domestic and foreign tourism .

With a country like this, a government has to do something very wrong indeed to send it down the tubes. By contrast, the Netherlands and Singapore, for example, are fragile. There, prosperity has to be wrenched from less forgiving circumstances and policy errors show up sharply.

Another possible explanation that I think holds some water is that both French bureaucrats and French business leaders are extremely able – and especially able at getting the best results for the country, even when government policies and behavior are against domestic interests.

A possible explanation that I have heard advanced by others is that France’s closet protectionism is at the root of its success. But I cannot believe this is true. Across the world, protection protects the inefficient and hurts consumers. I cannot see how France is an exception.

I have always thought that a large part of the answer is that it takes a long time for a country like France to be knocked off balance but that the reckoning has been postponed, rather than avoided. It is still yet to come – but it is on its way.

There are clear signs of underlying problems. Perhaps one of the most serious is the huge number of French people who work abroad, as many as 250,000 in London alone. They have fled high taxes, an anti-business culture and a rigid labor market.

Given those characteristics, high French productivity has an adverse element. Although unemployment fell during Macron’s first term, at 7.4pc, it is still very high. Here in the UK it stands at only 3.8pc.

The public finances are also giving clear warning signals. The public debt ratio is now running at 115pc of GDP, compared to 70pc in Germany.

Although the spread of the yield on French bonds over German bonds is extremely low compared to pre-euro days, it is still there, revealing that the markets do not believe that French government debt is quite the equivalent of German government debt.

Meanwhile, the deficit on the current account of the balance of payments has been increasing, indicating underlying competitiveness problems.

More importantly, France’s net international asset position is heavily negative, to the tune of almost 40pc of GDP, compared to Germany’s surplus of almost 70pc.

Macron has clear ideas about how to revive the French economy. He wants to raise the retirement age, reduce the size of the state, cut tax rates and improve the climate for businesses.

But during his first term, protests by the Gilets Jaunes severely limited the amount of radical reform that he could push through.

Since then, the French have not become any more docile. If anything, the opposite. And the standard of living is going to be squeezed by cost-of-living pressures that we are all experiencing and about which Macron can do nothing.

And over and above all this, there are some serious non-economic issues that cause widespread consternation and disquiet, including immigration, crime and a supposed threat to French identity.

Meanwhile, Macron is a strong believer in European integration at a time when the EU is changing fast, and when the evidence suggests that the French people have little appetite for further European integration.

I suspect that France faces several years of civil strife.

Roger Bootle is chairman of Capital Economics.


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