France: More like Italy than Germany?
In the more than two years that have passed since the start of Europe’s financial crisis, France has consistently aligned itself with Germany in pushing for greater austerity in so-called “peripheral countries” like Greece, Portugal, Spain and Italy. German Chancellor Angela Merkel even took the rare and somewhat awkward step of publicly campaigning for French President Nicolas Sarkozy.
But a closer look at the country’s debt profile suggests France may be misjudging its own underlying financial conditions. Even beyond French banks’ considerable exposure to southern European sovereign bonds, analysts say the economic backdrop is remarkably similar to nations that have run into trouble.
Writes Christoph Weil of Commerzbank in a research note:
France has the same problems as the euro periphery. The French economy is struggling with a massive loss of competitiveness and rising unemployment, while the consolidation of government finances is progressing at a sluggish pace. [...]
The French government has financed spending via ever-higher borrowing. In the 9 years since 2002, the French finance minister has exceeded the deficit limits of the Maastricht Treaty on 6 occasions. As a result, France is now deeply in the red. While sovereign debt was under the 60% of GDP threshold at the beginning of monetary union, it had risen to 85% by the end of 2011.
Oh la la. Or should we say, mamma mia?