Link: http://www.theglobeandmail.com/servlet/story/RTGAM.20090416.wfranceeconomy0416/BNStory/crashandrecovery/home
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.
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4 comments:
It seems to me that the French government have more of a conservative approach in making fiscal policies. This points out to why France is not hit as hard as other European countries in this global recession. I believe countries should follow the French government of implementing automatic stabilizers. With strong unemployment insurance programs in place, the GDP of a country will not decline as much because the unemployed will at least have some money to spend. Therefore, the spending in the economy will not dramatically drop and employment will remain relatively high. Another policy governments around the world should consider is having rigid employment laws to make it harder for employers to lay off workers, especially during a recession. This policy will get employers to restructure its human resources, so that when a recession hits, jobs will not be lost. The unemployment level will be stabilized, so the GDP will not experience a huge drop. It makes sense France’s economy is doing better than other countries right now because their economy does not hugely depend on exports, as opposed to a country like Japan where their economy hugely depends on the exports of electronics and cars. During this recession, world leaders should all learn something about France’s conservative approach in making fiscal policies to help reduce the impact of a deep recession.
Jason Tong
I think that it's important to analyze the effects of current economic aids for the future. As I understood from your blog, France is currently not suffering as poorly from the recession as its neighbouring European countries, but in the long run, recovery will take longer. Although right now, France has automatic stabilizers helping the country from slumping too much, the government has to take into consideration how it'll affect the country in the long run. As much as it is good that France is doing okay right now, I don't think it's a good idea to rely on its weaknesses to stabilize its economy. Hopefully the French government comes up with stricter rules that will create more structure in its economy. Even if it causes growth in the French economy to decrease right now, it will be more beneficial to the country for the future.
Stephanie Poon
Blk F
To an extent, I think France's fiscal policy in reducing the amount of damage they receive in a recession definitely has it's own benefit. However, I think the biggest set back to this policy is the lack of protection for the employers. If we look at the big picture, then the employers are the top dog's of the food chain, and if they are unable to lay off workers and the amount of profit they make is extremely lacking, then there would be a high possibility of bankruptcy. If many employers end up in economic hardship, due to the unability to lay off workers, then how many bail outs would the French governemnt need to give?
Leung. E
Block E
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