“Its open economy requires France to pursue economic policies similar to those pursued in other European countries”

2024-10-05 06:00:15

Lhen we listen to current economic policy debates, we might believe that France is an isolated country, a closed economy, which can pursue an economic policy very different from that pursued by the other countries in the euro zone. For example, we are considering wage increases, tax policies, labor market rules which could be very different in France from those observed in other European countries.

However, France is a very open economy – imports represent 28% of gross domestic product (GDP) – which, as a member of the euro zone, has the same short-term interest rates and the same exchange rate. than the other euro zone countries, 55% of whose public debt is held by non-residents, and whose net external debt reaches 24% of GDP (net external debt is the difference between gross external debt and gross foreign assets).

This economic opening requires France to pursue economic policies close to those pursued in other European countries, in particular budgetary and tax policies, but also salary, education and employment policies.

Weak skills

There are already strong differences between France and the other countries in the euro zone. The public deficit in 2023 was 3.6% of GDP in the euro zone and 5.5% in France; that forecast for 2024 is 3% in the euro zone and at least 5.6% in France. The public debt rate is 110% of GDP in France at the start of 2024 compared to 90% in the euro zone, despite a significantly higher tax burden in France: 48% of GDP in 2022 compared to 42% in Germany, 38% in Spain , 43% in Italy, 38% in the Netherlands.

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The hourly wage including social charges in the manufacturing industry was in 2021 43 euros in France, 44 euros in Germany, but only 31 euros in Italy, 25 euros in Spain and 41 euros in the Netherlands.

France also suffers from the weakness of its skills. According to the PISA survey [programme international de l’OCDE pour le suivi des acquis des élèves] of 2022, the average score in mathematics, reading and science was 533 in Japan, 506 in Canada, 497 in Australia, 495 in Finland, 494 in Belgium, 491 in Austria, 489 in the United States, 482 in Germany and only 478 in France (at the same level as Spain and Italy).

The employment rate for 15-64 year olds in France was 68% in 2023, compared to 82% in the Netherlands, 77% in Germany and 70% for the euro zone as a whole. The low employment rate leads to a low GDP level, and therefore a low tax revenue. If France had Germany’s employment rate, GDP would be around 10% higher and tax revenues would be 5 points of GDP higher.

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