France Doesn't Need to Be More Like Germany

By Simon Tilford

President Sarkozy wants France to become more like Germany. In a recent speech he made 15 positive references to the German economic model. Unlike France, he argued, Germany had reformed its economy and was reaping the rewards in terms of improved competitiveness and superior economic performance. He bemoaned the alleged decline in French industrial prowess and praised Germany's success at defending its industrial base. Is Sarkozy right to be so critical of French performance? And would it make sense for France to emulate the German model?

Sarkozy is certainly right that Germany is a more industrial economy than France. The share of the French economy accounted for by industrial output is as low as in Britain (a country Sarkozy likes to deride as 'having no industry') and lower than the US. Germany's share of world export markets has also held up remarkably well over the last ten years, whereas France's has fallen steadily. However, the relative size of a country's industrial sector has no bearing on its economic success. Just look at Italy, which has a comparably-sized industrial sector to Germany, but which is easily the worst performing large developed economy. Japan also has a very large industrial sector but has stagnated for much of the last 20 years.

France actually has a decent economic record relative to Germany's. Between 1992 and 2001, France managed annual GDP growth of 2.1 per cent compared to Germany's 1.6 per cent. Over the subsequent ten years - 2002 to 2011 - both countries grew by (an admittedly poor) 1.1 per cent per year. Although the German economy performed better in 2010 and 2011 than its French counterpart, the two countries' growth prospects are very similar, at least according to the European Commission, the IMF and the OECD. All three forecast growth of around 0.5 per cent in 2013 and 1.5 per cent in 2013. Perhaps the best measure of economic performance is productivity. Productivity per French worker is somewhat higher than in Germany, while productivity growth averaged 0.7 per year in both countries between 2002 and 2011.

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As recently as mid-2008, rates of joblessness were the same in the two countries. But Germany's labour market performance has been superior to France's over the last three years. By the end of 2011 the rate of unemployment had fallen below 6 per cent in Germany,
whereas it has risen to almost 10 per cent in France.

There is a demographic element to this - because of its very low birth-rate Germany has far fewer people entering the labour market than France. But there is clearly something else at play. The so-called Hartz reforms under the previous German government undercut the bargaining power of labour, and succeeded in pricing workers back into employment, albeit often on very low wages. Adjusted for inflation employee wages fell by 2 per cent in 2002-2011, compared with a rise of over 10 per cent in France. This, in turn, had an impact on private consumption. Over the same period, private consumption grew by just 4 per cent in Germany, against 17 per cent in France.

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Simon Tilford is chief economist at the Centre for European Reform.

(AP Photo)

 

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