I wrote this piece with my friend Jean-Luc Gaffard. It is part of our ongoing thinking on the early steps of the new French administration. But I think it applies beyond France.
The French government faces a double challenge. The short run effects of the euro crisis compound a long-standing problem of competitiveness: from 1997 to 2012, the French market share fell from 5.3% to 3.3% of world exports. France is therefore suffering more than its neighbors, notably Germany, for the current slowdown.
In response to these challenges, François Hollande designed a two-arms strategy. First, he embraced austerity. To reduce public deficit to 3% next year, the French government presented a shocking 36 billion euros budget law for 2013. That will be mostly composed of tax increases. The second arm of the government strategy, a “competitiveness pact”, was, initially, aimed at shifting an important part of the burden of social security (20 billions euros) from firm contributions to the general taxation. Read more
I had already noticed that the IMF at times looks like Jekyll and Hide. But not to this point. Last time I cited a simple working paper. This time we are talking about the most important document produced by the IMF. Here are some excerpts from the October IMF World Economic Outlook, released on Monday: