3 Huge Problems With France's Economy

Paris is the city of lights and France is the land of love. But lights and love don't make money, and France's economy has hit increasingly hard times in the past few years. Here's why.

1. Not-so-unified European Union

Source: Flickr, Motiqua. European Union Parliament Headquarters in Brussels, Belgium. .

The European Union began as a steel and coal agreement in the 1950s -- and perhaps it should've stayed that way. Despite aspirations of economic prosperity, cultural preservation, and never-before-seen international synergy, the European Union has lately been more headache than help.

For an economically strong country like Germany, the European Union has been a thorn in its side. And for nations with weaker economies like France, Greece, and Italy, the Union isn't helping, either.

Germany's strength keeps the euro pricier than France prefers, which hurts export opportunities. In its latest Eurozone manufacturing report earlier in January, Markit Chief Economist Chris Williamson noted:

France is seeing a steepening downturn, in part the result of widening export losses. This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers.

Slower exports mean slower business, which in turn affects all aspects of France's economy. Although the French still lay claim to the second-largest economy in the Eurozone, manufacturing hit a six-month low in December. The country's unemployment rate has hovered around 10.8% over the last year, more than twice as high as Germany's.

2. Regulation

Source: Wikimedia Commons, Garitan. France President Francois Hollande of the Socialist Party.

Despite its history of revolutions filled with cries for freedom, French love regulation. The country thrives on controlled chaos, and rules are a must for a society that flourishes on bending them. Regulation comes part and parcel with EU membership, and France's own regulation tops most.

The nation's goals are laudable: environmental protection, high health and safety standards, support for local businesses, and social safety nets for marginalized citizens. But President Francois Hollande of the Socialist Party may be taking things too far.

His wealth redistribution plans include a "millionaire tax" which tacks a 75% levy on salaries exceeding 1 million euros -- a move that has been met with ferocious backlash by everyone from movie megastar Gérard Depardieu to Xavier Niel, the so-called "Steve Jobs" of France .

But it's not just the millionaires getting mangled. A recent report looked at an artificial barrier to growth for small companies considering expanding beyond 50 workers. Since "a tsunami" of labor laws hit businesses when they hire their 50th employee, some choose to stay smaller to avoid forming work councils, increasing union representation, etc, according to the write-up by economists.

While that might mean better conditions for those with work, France's 90% union membership rate already takes care of most of its citizens. So instead, France's economy misses out on supporting small businesses, increasing employment, and improving productivity. The economists' rough estimation of lost opportunity clocks in at a whopping 4% to 5% of France's economy -- around $118 billion.

3. Culture Shock

Source: Wikimedia Commons, Raphael Goetter. Metro worker strikes leave commuters stranded in 2007.

The French are just as hardworking as others -- but their country has undergone significant change that puts many cultural traditions at odds with economic sustainability and prosperity.

When France introduced a 35-hour workweek limit in 2000, other countries regarded the decision with a mix of astonishment, disdain, and perhaps even jealousy. But what was made law by liberals hasn't had its intended effect -- instead of promoting more employment, the rule has mostly allowed workers in France's economy to claim overtime on their average 39.5 hours of work a week, according to 2011 numbers (most recent data).

But even with overtime, not everyone's happy to ubiquitously expand employment. The French are infamous for their "grèves," when workers strike by the thousands (or hundreds of thousands) to demand more work, better work, or better paid work. The practice periodically shuts down airports, trains, and public services of all sorts. It's such a common occurrence that Yahoo! Finance's French page has an entire section devoted entirely to the coverage of the latest grèves.

While employers may appreciate the joie de vivre that their French workers emulate, corporations are understandably hesitant to open up shop in a fickle-minded France.

The fallacy of France's economy
The French have made emotional economic decisions before. From guillotining its upper class to selling Louisiana to the U.S. for less than three cents per acre, the country has had a haywire history. The challenges it faces today are unlike any it's ever seen before, and it's going to take more than a glass of Burgundy to make these three problems disappear.

Forget France: The answer is America
The future of manufacturing certainly isn't in France – but it's not in China, either. The U.S. has a head start on something France doesn't, and for the first time since the early days of this country, we're in a position to dominate the global manufacturing landscape thanks to a single, revolutionary technology: 3-D printing.

Although this sounds like something out of a science fiction novel, the success of 3-D printing is already a foregone conclusion to many manufacturers around the world. The trick now is to identify the companies -- and thereby the stocks -- that will prevail in the battle for market share. To see the three companies that are currently positioned to do so, simply download our invaluable free report on the topic by clicking here now.


Read/Post Comments (6) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 01, 2014, at 4:03 PM, ONEVOTE wrote:

    Get Germany out and everything will be mui bien

  • Report this Comment On February 01, 2014, at 4:18 PM, Risky88 wrote:

    I think it's hard to write a article on a country like France and determine what it needs when everything about that country is completely different than here in the U.S.

    It's not our job to tell them how to run THEIR country.

    They have democracy just like everyone else, don't like it start a movement and get someone else elected.

  • Report this Comment On February 02, 2014, at 9:44 PM, fuskiegirl21 wrote:

    What socialism doesn't work? Someone should phone Mr. Obama and let him know. Out millionaires will expatriate from the USA when the top tax rate reaches 75% as well.

  • Report this Comment On February 03, 2014, at 6:02 AM, gad1000 wrote:

    Why do you need to lie to make your points?

    > a "millionaire tax" which tacks a 75% levy on salaries exceeding 1 million euros -

    There is no such thing. There is a 2-yr TEMPORARY 50% tax bracket, to which are added the usual fringe benefit charges. This bracket does NOT tax the employee. It is NOT par of any "wealth distribution plan" and is expected to bring in only about €250 million.

    > France's 90% union membership rate

    False!!!! The union membership is closer to 10%. Unions do have a seat at the bargaining table along with employers and government (part of the ILO provisions for the so-called "social partners"). There are unions for management as well as employees and the unions are quite divided.

    France's problem is that it is raising taxes and imposing austerity. President Hollande said it in absolute words during his recent press conference: "SUPPLY SIDE ECONOMICS" (l'economie de l'offre). In other words, Reaganomics. And so demand has collapsed.

  • Report this Comment On February 03, 2014, at 11:29 AM, Paris75006 wrote:

    Total agreement with gad1000 above. When I saw 90% unionisation rate, I thought it had to be a typo. Strike out the zero. Austerity has been economically, intellectually and practically discredited--the studies it's based on are riddled with mistakes and it doesn't work. After 18 months of promising lower unemployment and higher growth Hollande now has to resort to doing acrobatics with the figures to explain that things actually are better. He just gave another 50 billion euros to the employers union in reduced social charges in a so-called 'exchange' for creating a million jobs--the employers have explained that life doesn't work that way--they have to have more customers first--which they will never have under austerity. So it's the downward spiral and we are flirting with deflation.

  • Report this Comment On February 03, 2014, at 1:07 PM, TMFJLo wrote:

    @gad1000 and Paris75006

    Thanks for the read. According to the following report, there's a union bargain that covers almost 90% of French: http://www.voxeu.org/article/small-isn-t-always-beautiful-co...

    More info on the "Millionaire" tax can be found here: http://www.independent.co.uk/news/business/news/france-appro...

    Like you said, the tax is on the salary (i.e. employer), not the employee. However, employer costs are usually passed on to employees or, in some cases, customers if demand is inelastic.

    Cheers,

    TMFJLo

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