The Curse of Zero Growth in France

France announced that GDP grew 0.0% in the second quarter. New president François Hollande, who has been in office for 100 days, must decide whether the new numbers will help his argument for a need for stimulus and higher taxes in his own country, or to argue that France’s economy is strong enough to help support Europe’s via his leadership on the issue of stimulus versus austerity for weak nations in the region.

The Guardian recently reported that polls show Hollande’s support among voters eroding. The paper’s editors wrote:

There was never much room for a state of grace in a country struggling with mass layoffs, unemployment, an uncompetitive labour market and an inability to pay for its public services and generous welfare state without borrowing from the markets.

If that assessment is correct, Hollande will be forced to turn much of his attention inward rather than spend much of his energy warring with Germany over measures that he believes will dig Europe out of the deep recession that has engulfed most of it.

Hollande’s position quickly has become somewhat similar to that of U.S. Treasury Secretary Tim Geithner, who comes to Europe from time to time to stump for the region to fix its economic problems via stimulus and more liberal banking policies. Europe has not repaired its house quickly enough. Geithner worries what ails Europe may spread to the United States and cripple America’s economy. Almost all of Europe’s prime ministers and finance ministers have greeted Geithner’s admonitions the same way. Why does he not return to the U.S. and fix the economy there? Based on GDP data from France, and particularly Germany, America’s GDP growth cannot be bragged about, particularly as government policy moves the U.S. toward the much discussed “fiscal cliff” that could push GDP expansion into negative territory early in 2013.

Hollande has become shackled by his country’s own economic performance. GDP of 0.0% is better than almost all of the rest of Europe, but not good enough for him to claim he has come up with solutions in France that can be applied to the rest of the region.

Douglas A. McIntyre