Sunday, August 25, 2013

The French Question

I guess France is the new sick-man of Europe, after Greece, of course.

At the New York Times, "A Proud Nation Ponders How to Halt Its Slow Decline":
PARIS — For decades, Europeans have agonized over the power and role of Germany — the so-called German question — given its importance to European stability and prosperity.

Today, however, Europe is talking about “the French question”: can the Socialist government of President François Hollande pull France out of its slow decline and prevent it from slipping permanently into Europe’s second tier?

At stake is whether a social democratic system that for decades prided itself on being the model for providing a stable and high standard of living for its citizens can survive the combination of globalization, an aging population and the acute fiscal shocks of recent years.

Those close to Mr. Hollande say that he is largely aware of what must be done to cut government spending and reduce regulations weighing down the economy, and is carefully gauging the political winds. But what appears to be missing is the will; France’s friends, Germany in particular, fear that Mr. Hollande may simply lack the political courage to confront his allies and make the necessary decisions.

Changing any country is difficult. But the challenge in France seems especially hard, in part because of the nation’s amour-propre and self-image as a European leader and global power, and in part because French life is so comfortable for many and the day of reckoning still seems far enough away, especially to the country’s small but powerful unions.

The turning of the business cycle could actually be a further impediment in that sense, because as the European economy slowly mends, the French temptation will be to hope that modest economic growth will again mask, like a tranquilizer, the underlying problems.

The French are justifiably proud of their social model. Health care and pensions are good, many French retire at 60 or younger, five or six weeks of vacation every summer is the norm, and workers with full-time jobs have a 35-hour week and significant protections against layoffs and firings.

But in a more competitive world economy, the question is not whether the French social model is a good one, but whether the French can continue to afford it. Based on current trends, the answer is clearly no, not without significant structural changes — in pensions, in taxes, in social benefits, in work rules and in expectations.