THE ECONOMIST’S RECENT cover on the French ticking time bomb angered leaders in France, not because it was all that devastating, but because it captured the attention of the investing class.
How do we know?
Because according to SocGen’s Michala Marcusen, the France question has suddenly sparked interest among clients.
CAN FRANCE REFORM?
We received several questions on France last week, no doubt prompted by a few prominent press stories. We have long pointed to the importance of structural reform for France. Against a backdrop of moderate interest rates and strong public sector governance (including efficient tax collection), we have less concerns on the budget targets and only look for a modest overshoot in 2013.
…recent initiatives offer hope that the government is recognising the need to make significant changes to the French economy. The next test is labour market reform. Ideas on the table include greater flexibility for permanent employees, a simplification of procedures associated with layoffs for economic reasons and more focused lifelong learning. Negotiations between labour market interest groups are due to conclude by year-end, and the government should present its reforms early next year.
These issues are likely to prove more challenging than the recently presented initiatives and much will depend on how public opinion responds. MARKET ISSUES: Some observers have suggested that market pressure is required to push for reform. We disagree. Plummeting opinion polls, the economic reality of present-day France and European peer pressure (notably from Germany) are already strong motivators.
Anyway, there was really nothing new or inflammatory in it. Lots of talk about labour reforms needed, and the lack of competitiveness. But in terms of real reason to freak out? Not so much.