As the sovereign debt crisis continues to worsen due in large part to incompetent leadership, more attention is being given to France.
Similar to the case seen in the U.S., the decline in domestic demand in France accounted for most losses in output during the 2008 financial crisis.
In contrast, the decline in net exports accounted for the bulk of output losses in Germany. Thus, the crisis-related damage was entirely demand-driven for Germany.
Moreover, while France suffered a more moderate decline in output during the trough of the crisis, its recovery has also been more tepid. Indeed, while both output in Germany and the U.S. had surpassed their pre-crisis levels by 2011 Q1, France still had not by then fully recuperated its output losses associated with the crisis and the recession. The fact that France experienced larger domestic output losses due to the crisis for a more prolonged raises the possibility of more lasting damage to the economy.
It is widely accepted that the finance, insurance, and real estate sectors tend to suffer most losses during a supply-driven shock. Unlike some other countries with severe permanent losses in certain sectors, no sector in the French economy has suffered such a loss by the global recession.
Like Germany, the finance, insurance and real estate sectors in France suffered relatively little destruction during the financial crisis. These sectors have already attained the pre-crisis output levels by end-2010, although they have recently declined in the face of the EU crisis.
In contrast, the U.S. experienced a maximum decline in these sectors of almost 8% during the crisis and has not yet recovered from these losses.
During the financial crisis of 2008 and thereafter, consumer and business credit showed a nice uptick in France and Germany, unlike the case seen in the U.S.
In past issues of this publication, I have discussed pension reform (see “Pension Risk Parts 1-3” from the Intelligent Investor) in the U.S. and Europe. While many of the reforms have been passed in Europe, discussions are ongoing.
One of the primary goals of pension reform in Europe (aside from lowering expenditures) was to boost labor force participation through the elimination or expiration of incentives that encourage early retirement, along with other features that have reduced Europe’s labor force participation over the years. I detailed Europe’s trend of chronically low labor force participation in a previous analysis (see “Europe’s Deflationary Future” from the Intelligent Investor).
The remainder of this report, as well as an overview of the global economy, with detailed analysis of Japan, Italy and the U.S is contained in the October Global Economic Analysis report. This report is 60 pages and can be purchased here.
You can also receive this report by subscribing to the Intelligent Investor.
See Our Copyright Policy
Copyright © 2008-2014. AVA Investment Analytics, LLC. All Rights Reserved.
Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher.
These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.
Article 19 of the United Nations' Universal Declaration of Human Rights:
Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.
More On Europe