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Washington, DC ― A new report from the Center for Economic and Policy Research (CEPR) concludes that policy constraints imposed on France by the European authorities, including the International Monetary Fund (IMF) are likely a significant drag on the French economy that limit options for increasing economic growth and decreasing unemployment.
The full report, including an executive summary, can be found here.
“It is unlikely that the French electorate will accept the European authorities’ constraints or regressive reforms indefinitely,” said Mark Weisbrot, CEPR Co-Director, and lead author of the report. “The rise of the far Right that blames France’s problems on minority groups and foreigners is clearly a result of these failed policies and of centrist politicians’ embrace of them. At the same time, there has also been a recent upsurge of support for feasible, progressive alternatives.”
Ahead of the French elections (the first round on April 23), France has experienced a lost decade, with almost no growth in per capita GDP. Unemployment averaged 10 percent for 2016.
The report notes: “With inflation at 0.35 percent, and real borrowing costs basically zero, the government has the potential through spending and public investment to dramatically lower unemployment. The constraints on increasing employment and growth appear to be political, not economic.” Yet the European authorities are pushing for greater restrictions on public spending, with the IMF recommending “limiting growth of government spending to the rate of inflation, as targeted in the government’s Stability Program.”
France has an interest burden on the public debt of just 1.7 percent of GDP, which is low by almost any comparison. The report finds that harsh public pension cuts during the last few years were unnecessary, since pension spending was projected to grow by just 1 percent of GDP over the next 60 years.
The CEPR report notes: “The spending cuts that the government of France has agreed to for the next few years would preclude a role for the government in reducing mass unemployment.”
The European authorities, including the IMF, advocate a reduced welfare state, including cuts to public pensions and health care spending, labor market reforms that diminish the bargaining power of organized labor, reforms that increase labor supply, and overall reduction of spending and taxation. Some of these reforms have already been enacted, having been met with large protests, and made the current president, François Hollande, too unpopular to run for re-election.
The paper notes that the European authorities pushed similar policies that contributed to economic crises and recessions in Spain, Greece, Italy, Portugal, and elsewhere, and so their recommendations for France should be viewed with a critical eye.