Dueling Directions

A Stagnant France Sans Fraternité

Manuel Valls and Angela Merkel
Manuel Valls and Angela Merkel.
  • Why it matters

    Why it matters

    France keeps pushing back a reduction of its budget deficit, which is a risk to financial stability in the euro zone.

  • Facts


    • France has again postponed cutting its budget deficit of 3 percent of economic output from 2015 to 2017.
    • France needs more reforms and stronger efforts to reduce its budget deficit, said the country’s central bank president, Christian Noyer.
    • To spur growth in the euro zone’s second largest economy, France’s President François Hollande named a former investment banker as new economics minister last month.
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As French Prime Minister Manuel Valls visited Germany this week to tell politicians and business leaders his country was serious about reforming the economy, two top French bankers told a different story: The changes don’t go nearly far enough.

France, Europe’s second-largest economy, has struggled to recover from the euro zone debt crisis that swept the continent in 2011 and 2012. If it does not succeed in reducing its budget deficit and debt pile, it could pose a risk to E.U. financial stability. A few years ago, ailing finances in Greece, Portugal and Ireland destabilized European financial markets.

Faced with sluggish growth and a reform-averse society, President François Hollande shook up his cabinet last month, announcing a former investment banker as new economics minister to kick start growth and help France to reduce its debt pile of 93.8 percent of economic output.

As part of a plan to boost economic growth and help improve public finances, France plans to cut €40 billion in taxes and costs for French firms, but this is not enough, the French central bank president, Christian Noyer, told Handelsblatt publication WirtschaftsWoche.

“We should also reduce the high level of bureaucracy in the economy. It is a nightmare to see how many regulations exist in the real estate sector, for instance. That is a reason why the property market is developing so weakly,” said Noyer, who is also a member of the European Central Bank Governing Council.


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