Meanwhile, as Greece continues to distract the markets, France, the other primary prop for the EU besides Germany, is now experiencing an economic contraction on par with that of 2008-2009.
Indeed, France’s September’s auto sales numbers were worse than those of September 2008 (the month Lehman collapsed). The country’s PMI reading is back to April 2009 levels. Even the French Central Bank, which would hold off as long as possible before unveiling bad news, has announced the country will re-enter recession before year-end.
- Over the past few weeks, an extraordinary cry of alarm has risen from chief executives who warn that the French economy has gone dangerously off track. In an interview to be published on Nov. 15 in the magazine l’Express, Chief Executive Officer Henri de Castries of financial-services group Axa (CS:FP) warns that France is rapidly losing ground, not only against Germany but against nearly all its European neighbors. “There’s a strong risk that in 2013 and 2014, we will fall behind economies such as Spain, Italy, and Britain,” de Castries says.
- On Nov. 5, veteran corporate chieftain Louis Gallois released a government-commissioned report calling for “shock treatment” to restore French competitiveness. And on Oct. 28, a group of 98 CEOs published an open letter to Hollande that said public-sector spending, which at 56 percent of gross domestic product is the highest in Europe, “is no longer supportable.” The letter was signed by the CEOs of virtually every major French company. (The few exceptions included utility Electricité de France, which is government controlled.)
We get additional confirmation that France is in big trouble from its partner in propping up the EU, Germany.
- German Finance Minister Wolfgang Schaeuble has asked a panel of advisers to look into reform proposals for France, concerned that weakness in the euro zone’s second largest economy could come back to haunt Germany and the broader currency bloc.
- Two officials, speaking on condition of anonymity, told Reuters this week that Schaeuble asked the council of economic advisers to the German government, known as the “wise men”, to consider drafting a report on what France should do…
- “The biggest problem at the moment in the euro zone is no longer Greece, Spain or Italy, instead it is France, because it has not undertaken anything in order to truly re-establish its competitiveness, and is even heading in the opposite direction,” Feld said on Wednesday.
- “France needs labour market reforms, it is the country among euro zone countries that works the least each year, so how do you expect any results from that? Things won’t work unless more efforts are made.”
France will be a bigger problem than Spain or Italy for the EU. That is one heck of an admission from a German official. If France deteriorates then it’s game over for the EU. The current bailouts mean Germany is already on the hook for an amount equal to 30% of its GDP. If France tanks the amount will balloon astronomically. At that point it’s game over.