France under the Loop

First of all, sorry for my absense the recent days but I had to deal with an exam in scientific philosophy and methodology which has had me strained right up until yesterday. Now however, I am ready to dig back in and I wil do so by presenting the recent analysis on France over at Global.Economy.Matters (GEM). In two notes, Manuel from Electionresources.org has excellently taken care of the political struture of France and concrete situation surrounding the recent presidential elections which saw Nicolas Sarkozy vanquish Ségoléne Royal to become France's new president. In terms of my contribution I have a note up on the French economy, the situation anno 2007, and its future challenge. My note is in essence a reply or critique if you will of two notes on France by Eric Chaney from MS' GEF. As you will see I am not critical towards Chaney's points in general and actual I feel much of his analysis is spot on yet his conclusion and thus labelelling of France as the new sick man of Europe is wrong I think. Here is my summary ...

Looking into future of France with a new president at the rudder it is my hope and optimistic belief that Sarkozy will now command the legitimacy to carry out what is sure to be big changes in the French society. Hopefully theses changes will be for the better of the French and thus also European economy.

To finish where I started with Eric Chaney notes over at Morgan Stanley’s GEF (see links above) I do not agree with the overall label of France as the new sick man of Europe. Essentially, Chaney makes a whole lot of sense in his analysis and as I have also noted above France indeed needs reforms in order to combat high unemployment as well as shaky public finances. The only qualifier that I would attach Chaney analysis is on France’s trade deficit which actually is much needed to sustain growth in the Eurozone as a whole and once again I feel as if the account of how demographics affect capital and trade flows is somewhat missing in the general analysis. In terms of Europe I still believe that the scarlet letter of sick man rests firmly on Italy mainly as its government debt at about 100% of GDP poses a fundamental risk to the future of the Italian economy, its future membership of the Euro and public pay-go benefits system; all this of course especially given the demographic realities. In that light, I don’t think Chaney’s analysis on France is flawed as such, but its headline is.