Chapter 8 Blog

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Summary



France has been able to evade much of the damaging economic effects of the recession unlike its neighbouring European economies. Even though this is good news for the current situation for France, the qualities that have protected the French economies from the recession will slow down its growth once recovery sets in, emphasizing the need for President Nicholas Sarkozy to make the economy more dynamic. The French economy contracted 1.2 percent for the first three months of this year according to a Reuters poll. Compared to the expected decline in GDP of 2.2 percent in Germany, 1.6 percent for the euro zone, and 1.4 percent for Britain, France has been able to cushion itself from the decline in GDP experienced in other European countries. Even though France may currently be sitting atop the other Economies, an analysis shows that Britain, France and Germany will be recovering at the same rate in 2010, but Britain and Germany will speed up in recovery for the long run. The factors in the French economy that has cushioned it from the recession include, disinflation and a wage structure which prevents salaries from being adjusted during economic downturn. Strict employment laws also make it harder for companies to lay off workers during recession, . The fact that France does not rely as much on exports means that they would not be as vulnerable to GDP changes like countries such as Germany which count on their exports to stimulate the economy. Automatic Stabilizers have also helped those struggling under the recession with unemployment benefits. Even though France is currently in better shape than other countries during this recession, once the world economy picks up, Germany is expected to recover faster due to its successes in exports. The fact that France may slow down in growth has prompted President Sarkozy to introduce reforms, especially in the labour market.



Connection



When economic conditions change, governments implement stabilization policies to help the economy react to the change. This can be seen in the French economy. Its stabilization policies have helped prevent a large drop in GDP by helping those suffering from unemployment during recession. With unemployment insurance programs and other forms of benefits, people will be more willing to spend and that would result in more money circulating the around the economy which benefits the GDP. This also explains why France has been able to tank the recession better than its European neighbours. Another situation taking place in France would be the decreasing price and the rise in unemployment. This can be explained with the Philips Curve which states that there is an inverse relationship between unemployment and inflation.



Reflection


The employment laws in France definitely need to allow more flexibility for employers. Even though its strict policies are preventing employees from being laid off in the current recession, employers would be reluctant to hire. This can prove to be a serious problem once the global economy picks up and employees are still struggling to find a permanent job. As mentioned in the article, GDP can actually contract and France could experience another period of negative GDP growth. In a way, having strict employment laws may be beneficial during recession periods because consumers would still be employed, and that would result in more spending and a stable GDP, however, once the world economy has recovered the problems of getting employed under strict laws would arise. Overall, the situation in France reveals that a rigid labour markey system, may help ease the effects of a recession and provide some form of stability, but in the long run, it may prove to hinder growth.