France’s current issues
The economic recession which has swept the entire world has not spared France. Having started in the US, the crisis was evident in France within the last few months of the year 2008 and early 2009. The financial crisis had much less impact on the French banking system as compared to most other close trade partners with the US. The recession has been significant to the French economy as exhibited by the 2.2% shrink of the economy in the year 2009.
The response to the crisis involved expansion fiscal and monetary policies just like the rest of the western countries. This was in response to calls by local and international partners. The French political class had to heed to calls to prevent further job losses on top of the already existing high levels of unemployment which has increased from about 7.8% in 2008 to just about 10% and responsible for almost 3.7 million people recorded as being poor in the country.
The stimulus package was to the tune of $35 billion at the start of the year 2009. Notably, the package was defined surrounding the need to improve on infrastructural developments as well as breaks in taxes for small and median size businesses (Survey: France, 2009, par4-6).
Amid the panic caused by the crisis, a $25 billion strategic fund for investment was established in the city of Paris in addition to a $52 billion towards focused on science and technology. These are important response strategies which are evidently yielding positive rewards as portrayed by several indicators.
First, the industrial confidence factor is now on the growth path. Latest figures show that it grew by a rate of 60% as compared to the lowest figures recorded in years 2008 and 2009. Also, the construction as well as services sector confidence indicators are on the rise. On this note, despite the 2009 shrinking of the economy, current predictions indicate a growth rate of positive 1.4% in the year 2010 and 1.7% in the year 2011 (Economic and social issues, 2010, par5).
The most important areas expected to guide the economy to full recovery are business investments as well as exports. Business investments are heavily supported by depreciation of the Euro in the recent past which in effect has made exports cheaper internationally as well as the improving world demand as the global economy pulls out of the recession. Business investment on the other hand will be significantly supported by the tax cuts on investments introduced during the 2010 budget.
As can be seen the economic risks have been significantly reduced following the evident recovery of the economy in response to the government actions. However, despite the positive outlook, public finance remains a challenge for the country. Due to the stimulus package as well as a host of other factors prior to the recession, the tax burden in France is evidently high in comparison with the rest of Europe.
The burden has risen to nearly half of the country’s GDP. Budget deficit has jumped from 3.4% of GDP according to 2008 figures to close to 8% as recorded in late 2009, this is the highest recorded around the region. This being the case, it is likely that taxes will rise in the future and more importantly, expenditure by government may have to be reduced in order to fill the gaps (World Factbooks, 2010, par4).
Current politics surround the structural reforms proposed by the president on government bureaucracy and pensions are aimed at reducing recurrent public expenditure but at the expense of more urgent corrections which have greater effects on cost cutting.
It is clear that France has very harsh politics, the left and the right wings are always after each other’s neck. Also, the history of France shows that there are times when voting can lead to very drastic change of leadership which can disrupt the implementation of existing policies.
In the wake of a recession, the nation’s president Nicholas Sarkozy has managed to put a strong face and mount a spirited fight against job losses and the stability of the macroeconomic environment amid strong critic. The success will be important for his political wing to maintain power after the next general election (Government and business in France, 2009, par5).
Indeed, the country is known for its restlessness in the face of difficulties and it is predicted that though the recession may be over, the rate at which the unemployed will be able to find employment will be an important determinant on how favorable the political leadership will be viewed as well as the general business environment.
As can be seen, France remains a safe and secure destination for businesses as economic and political risks have been reduced due to strategic government interventions Most of the risks arise from the uncertainty of the future concerning the public finance, the occurrence of disruptions and a possible drastic change of political leadership should the policies put in place fail.
Reference List
Economic and social issues. (2010). Understanding France. Web.
Government and business in France. (2009). Economist. Web.
Survey: France. (2009). Economist. Web.
World factbooks. (2010). CIA. Web.