France

HEAD-EMU

Country Analysis

France


The probability of France joining EMU from the start date remains quite high despite the fact that the political winds within the nation are starting to blow in the direction of both the socialists and communists and away from conservatives. Still, joining EMU may been seen more emotionally rather than economically suggesting that if France gets more power out of joining than not, then even the socialists will be in favor of joining.France’s economic and fiscal position is anything but impressive. Rising demands from unions for retirement age to be lowered to 55 goes against all sense of rational economic thought. Still, it is hard to see France not joining when French nationalistic tendencies, which have been so anti-American, are taken into consideration. To many, EMU represents a blow against the United States and anything which accomplishes that end within politicial circles in France often unites all parties.

The economy in France is still tottering on the brink of national disaster. It unfunded pension liabilities are so great one is moved to asked when will the system collapse – not if. Domestic consumer demand has shown a dismal performance in 1996 and it is very unlikely to recover in 1997. Despite maintaining of a loose monetary policy and the weak franc on world exchanges, economic growth in France is running at disgraceful 1.6% in 1997.

It has been precisely due to the worst economic growth within Europe for 1996 (1.1%) that France gained permission from the EU to fudge its books by using its pension funds from the soon privatised France Telecom to offset its deficit in 1997. Nevertheless, these “creative” accounting techniques may help the government achieve the 3% target criteria in 1997, it may still be impossible at the end of the day.

Despite the economic conditions within France being highly questionable and certainly a risk to the success of EMU in the years ahead, the sheer political power of France combined with the flexibility written into the Maastricht Treaty will most likely permit France to join in the first round. Ceratinly, without France there can be no EMU since it is a main player along with Germany.


1995 1996e 1997f
Inflation 1.7 2.1 1.4
Budget Deficit / GDP 4.8 4.0 3.2
Debt / GDP 52.8 56.4 57.2
10Y Bond Yields 7.5 6.3 6.0
ERM Member Y Y Y
f=forecast e=estimate

© Princeton Economic Institute

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