François Hollande’s Wrong Idea of France

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France’s new president, François Hollande, has achieved a remarkable series ofpolitical victories – at home and in Europe –since his election in May. Unfortunately, his streakof success will inevitably call forth aneconomic reckoning that will shock France’s apparently unsuspectingcitizens and doom the French elite’s approach to the “construction of Europe.”

Since winning the presidency, Hollande has won a parliamentary majority andpushed Germanytoward accepting joint liability for eurozone countries’ debts. But forebodings of crisis have become widespread inFrench business and economic circles.

But the real danger – which even Hollande’s sternestcritics may be underestimating – is not so much his individual policy failings(serious though they may be) as his approach to the twinchallenges posed by France’s economic imbalances and the eurozonecrisis. On each front separately, he might manage tomuddle through; together, they look likely to cementFrance’sloss of competitiveness.

Declining competitiveness is best captured in a single indicator: unit labor costs, which measure the average costof labor per unit of output. In a monetary union, discrepanciesin wage growth relative to productivity gains – that is, unit labor costs –will result in a chronic accumulation oftrade surpluses or deficits.

Since the euro’s introduction, unit labor costs have risen dramaticallyfaster in France than theyhave in Germany.According to Eurostat data published in April 2011, the hourly labor cost in France was

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关键词：France wrong Franc Land idea liability president achieved success winning

The combination of gradualism (on the most generousinterpretation) in domestic economic reform and the paralyzing effect of theeurozone crisis will lead to a massive shock.( twin challenges)
(first chanllege is loss of competitiveness due to fiscal(tax) and regulatory(lump of labor) pressure on employment)(second chanllege is the conflict between the gradual reform needed to recover the competitiveness and no time to do that without renouncing the European project)

Declining competitiveness is best captured in a singleindicator: unit labor costs, which measurethe average cost of labor per unit of output. In a monetary union, discrepancies in wage growth relative toproductivity gains – that is, unit labor costs – will result in a chronic accumulation of trade surpluses ordeficits.
Since the euro’s introduction, unit labor costs haverisen dramatically faster in Francethan they have in Germany.The high cost of employing workers in Franceis due not so much to wages and benefits as it is topayroll taxes levied on employers.The entire French political class has long delightedin taxing labor to finance the country’s generous welfare provisions, thusavoiding excessively high taxation of individuals’ income and consumption.This is a version of the fallacythat taxing companies (“capital”) sparesordinary people (“workers”).such taxes on firms are always passed on to households– usually through straightforward price hikes, and, in France, alsothrough unemployment.The repeal of thetax break on overtime reflects anothereconomic fallacy to which French Socialist politicians are deeply attached: the“lump of labor” notion . The idea behindthe policy is that demand for labor is a constant, and that this fixed numberof aggregate working hours required by employers to meet final demand can bespread more evenly among workers to reduce unemployment. Generating more“liquid” (jobs) requires not discouraging the entrepreneurs on whose activitiessustainable job creation ultimately depends. Theeffect of fiscal and regulatory pressure on employment is to encourage Frenchfirms to invest and hire outside France.(first chanllege is loss of competitiveness due to fiscal(tax) and regulatory(lump of labor) pressure on employment)

the eurozone crisis is denying France the time that suchgradualism requires.A simple, effective way to buy time would be toabandon the euro and restore competitiveness through a devalued nationalcurrency. But this expedient is incompatiblewith mainstream French politicians’ devotion to the “European project,” whichamounts to a projection of French soft power(second chanllege is the conflict between the gradual reform needed to recover the competitiveness and no time to do that without renouncing the European project)