An IMF team will conclude its annual review of the French economy and hold a news conference this morning.
It’s a safe bet that the Fund’s prescription will be similar to that of the EU and most other interested observers – the two extra years France has been given by Brussels to meet its debt-cutting targets must be used to liberalise and reform its economic structures. That was certainly Angela Merkel’s message to President Francois Hollande last week and also implicit in the Franco-German position paper which is intended to lay the ground for an EU summit at the end of the month.
The paper apparently contained a string of concessions from Germany – such as accepting a full-time president of the Eurogroup of euro zone finance ministers and paving the way for the next stage of a European banking union by accepting a “resolution board” to deal with restructuring or winding up failed banks, although that would be based on national authorities not the central body advocated by the European Commission and European Central Bank.
But the real story is what Hollande signed up to in return. The smart money says he promised to deliver on labour and pension reforms which will be tough for his socialist allies to swallow. Without that, France’s gentle economic decline could continue until the Franco-German motor which has traditionally driven the European project, could become solely the German motor.
By apparently giving ground – although how much remains to be seen as EU negotiations continue – Merkel may have given Hollande the political cover to act. His irate response to the European Commission’s policy demands last week showed that more than anything else, he cannot afford to be seen to be bowing to the demands of others.