Less inflation, better jobs… in France la vie est belle | Economic Sciences

WWhile the UK, US and much of the EU are gripped by a cost-of-living crisis heightened by Russia’s invasion of Ukraine, in France President Emmanuel Macron’s “tariff shield” is helping to control the increase in prices.

Inflation reached 4.5% in March, and although it was higher than February’s 3.6%, it is still one of the lowest rates in the industrialized west and well below the UK’s 6.2%, 7.3 % from Germany, 9.8% from Spain and 11.9% from the Netherlands. . Last year’s decision to limit the amount by which France’s mostly state-owned energy companies could raise prices has benefited consumers and taken some of the inflationary pressure off industries that rely on gas and electricity. .

In France, where around two-thirds of power comes from Électricité de France’s nuclear plants, the electricity component of inflation has risen 4% in the past 12 months, but on average more than 27% in the eurozone as a whole. .

However, in the first round of next Sunday’s presidential election, Macron will face criticism from right and left for skyrocketing diesel prices, which hit the rural poor, and for his attempts over the past five years. to end decades of low growth with a chain. of pro-business policies.

Recent outrage over his spending €2.4bn on consultants since he took office, including €1bn with US McKinsey, is another headline-grabbing issue that drowns out his impressive financial record and dents his lead in the polls.

By most economic criteria (national income, business investment, consumer spending, labor supply, and rising prices), France ranks at or near the top of the list of wealthy nations. Contrary to most forecasts, its economy recovered last year to 1% above pre-pandemic levels. The UK is still 0.1% below.

Business investment is up in France but down in the UK. The labor shortage there is restricted to discrete corners of the economy, thanks to the expansion of a German-style apprenticeship program that the British government promised but has yet to deliver.

UBS economist Felix Huefner said: “The exceptional performance of the labor market has come as a big surprise.”

There are more people working in France than before the pandemic, while in the UK some 500,000 people, mostly over 50, have dropped out of the job market, exacerbating shortages.

Daniela Ordonez of Oxford Economics credits better funded and targeted financial support: “It meant the French continued to buy expensive items when other countries stopped.”

The achievement gap may seem small: the number of people working or looking for work is 1% higher in France than in 2019 (and 1.5% lower in the UK). But Huefner says an increase in the number of workers during the pandemic has helped keep French wages in check and business costs low.

Philippe Aghion of the Insead business school in Fontainebleau says 1.2 million jobs were created between 2017 and 2021, “and not just any job: the share of long-term jobs has increased.”

Temporary contracts, especially for younger workers, were common after nearly two decades of restrictive labor laws, most notably the 35-hour week, dating from February 2000. Temporary agency workers, contractors, and Interns became as common in France as in the UK. as companies tried to avoid the costs of permanent employment.

Aghion was one of three economic advisers to Macron when he first ran for president. He says the president’s cap on labor court costs was a game changer, giving big companies an incentive to hire more full-time workers.

Apprenticeship and training reforms were another seismic push, he says: “In France, we used to be very top-down, but these days we are more bottom-up, allowing workers to negotiate solutions with companies. Training is no longer decided by the unions; the workers choose what to do, as they do in Germany.”

Talking with him Observer Last week, Cédric O, France’s secretary of state for the digital economy and a close ally of Macron, said the president’s reforms to tax and labor laws, and his understanding of the concerns of small businesses, played a role. : “He understands and believes in entrepreneurs. We are now halfway to creating the business ecosystem we need.”

Ordóñez worries that much of the money Macron spent during the pandemic has pushed the national debt from less than 100% to 115% of national income in two years.

Earlier this year, Bank of France Governor François Villeroy de Galhau warned electoral candidates that proposals for tax cuts and new spending were unaffordable: “We cannot allow our public finances to deteriorate further.”

Macron has already committed more than €60 billion to a recovery fund, along with €40 billion from the EU, to provide the backbone of public investment over the next two years.

But Ordóñez is among many who argue that the Macron government has so far distributed borrowed funds wisely. “The money is being spent to restructure the economy and free businesses from historically high taxes,” he says.

“More investment and job creation will pay dividends.”

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