France: at the start of a very long road

The French government has a long way to go in completing its economic reform agenda.

The French government's latest PR stunt triggered widespread hilarity last week. President Franois Hollande had asked his ministers to write essays outlining their visions for France in 2025. They were rife with "nave optimism", says The Times.

None grappled with the changes France needs to thrive over the long term: to shrink the state, lower public spending, raise the retirement age and "end the unions' de facto veto on labour market reform". These are crucial to bolstering France's long-term growth, and ensuring it does not follow the periphery "down the path of spiralling unemployment [and] uncontrolled debt".

It certainly can't count on growth over the next few years to lift it out of trouble, notes Capital Economics. France has crept out of recession, but public spending will be squeezed by 3% of GDP over the next two years to cut the deficit.

Banks are still reluctant to lend: given their reliance on wholesale funding, they are vulnerable to rising interbank rates stemming from any resurgence of the euro crisis. Business and consumer confidence is near record lows. The small reforms made so far, including a lower tax on employers, will take time to kick in. France has a long, long way to go.

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