According to budgets they published this month, France and Italy are failing to meet the Euro area requirements for reducing Government debts and deficits to sustainable levels. Italy has given an indication that it will meet the European Commission half way and make some further adjustment, but France is taking a harder line.
If France, as a big country making up 20% of the Euro area’s GDP, were to be exempted from the EU debt and deficit rules, in ways that were not open to smaller euro area countries, this would do great damage to the credibility of the euro, and could drive up to the interest rate euro area governments must pay to borrow. It is thus very important to all EU states that France overcomes it’s problems.
In recent years, France has lost competitiveness, and is running a balance of payments deficit. In other words its people are spending more abroad, that than they are earning from abroad.
The French economy is projected to grow by only 1% in 2015, as against a projected growth of 2% in Germany and Spain, 2.7% in the UK, and almost 3% in Greece and Sweden.
The loss of competitiveness of France is due to several factors