The European Politics Blog

Blogging about politics and current affairs in Europe

One of the first demonstrations against President François Hollande saw few thousands march peacefully against the strict austerity measures unveiled by the Socialist government. France is the worlds’s fifth-largest economy, with subsided borrowing costs and a continuing modest household debt. Furthermore, a high birth rate coupled up with per hour worked, make French employees rather productive.

One credit rating agency, Standard & Poor’s, however, has downgraded the country’s AAA status to AA+. In addition, both increased public spending and a competitiveness gap with Germany over the last decade, is holding France back from making a full economic recovery. Public spending accounts for 57 percent of GDP, while debt sits at 91 percent of GDP. The competitiveness gap, on the other hand, is attributed to strict labour market rules and payroll charges on employers, which keeps labour costs high and leads to less job creation.

France is in its second recession in four years after the economy shrank by 0.2 percent in the first quarter of 2013. There is also widespread record unemployment of 11 percent and low business and consumer confidence. The country’s labour laws have also been overhauled to simplify the process of workers changing jobs and for companies to fire employees, which in times of recession doesn’t do much to provide some employment stability for many workers.

A range of measures have already been taken to better employment rates across the country, particularly for young people and older workers, and this should continue to enhance France’s labour market. The tax system in France continues to be quite complex and in dire need of proficiency as well, because of special allowances and continual legislative changes, and this needs to be reformed to make room for increased earnings from VAT and shift the large bulk of tax earnings from labour.

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