France Could Be Next European Economic Disaster

Unless Paris is able to attract new industry, create a more dynamic job market and increase global competitiveness, it could become the next European economic basket case.

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Strollers walk by the Christmas decorations on the Champs Elysees avenue on Christmas day, Thursday, Dec. 25, 2003 in Paris. The Arc de Triomphe is seen behind.

Robert Nolan is an editor at the Foreign Policy Association and producer of the Great Decisions in Foreign Policy television series on PBS. You can follow him on Twitter @robert_nolan.

A failed plan to tax the rich at 75 percent. A glaring lack of global competitiveness. Famous actors trading in their French citizenship for Russian to avoid paying high tax rates. The news from Paris as of late has been a bit sensational, but also dire. Could France be the first northern country in the European Union to confront potential economic demise in 2013? Perhaps that assessment is not unlike Gerard Depardieu's highly publicized Moscow defection—a bit dramatic. But according to recent economic figures, there is some cause for concern.

The French economy—Europe's second largest—grew at just 0.1 percent in 2012, and unemployment remains at a 14-year high of nearly 11 percent. High labor and production costs have all but crushed competitiveness with European and Asian exporters in the global market, and the French continue to resist making the kinds of deep economic reforms that helped countries like Germany get back on track in the 1980s.

[See a collection of political cartoons on the European debt crisis.]

Walking the streets of Paris during the recent holiday season, few French nationals were to be found along the boulevards of les grands magasins. Rather, Chinese, Russians and Brazilians filled the streets admiring the holiday windows, which in many ways were a reflection of their own images.

"France has essentially become a luxury economy catering primarily to foreigners," one Parisian told me. "We don't create anything outside of fashion, foods and touristic experiences."

[Read the U.S. News Debate: Who Is Handling Its Debt Crisis Better: United States or Europe?]

But observers note that this model is unsustainable for the country of 65 million. As Fortune's Shawn Tully writes this week, "La crise est arrive." Even The New York Times ran an editorial Sunday decrying the sad state of the French economy and offered up a number of potential remedies.

Many believe that fixing France should be paramount to the European project—whether reforms come internally or are triggered by outside forces. Meanwhile, recent attention has spurred French officials to act. Last week, the administration of socialist President Francois Hollande announced a "program of work" that would, many hope, begin to address some of the structural shortcomings of the French economy, including its budget deficit, government support for dinosaur French corporations that fail to innovate, and long outdated social protections that place France at odds with most of the world.

[See 2012: The Year in Cartoons.]

It will, like always, be an uphill battle. Benefits like the 35-hour work week and unparalleled job security are highly prized among a French public keen on taking to the streets when threatened. But many see 2013 as different. Unless Paris is able to attract new industry, create a more dynamic job market and increase global competitiveness—what the International Monetary Fund calls a "competitiveness shock" package of reforms in its most recent report—it could become the next European economic basket case.

For more on the euro zone economic crisis, check out Great Decisions in Foreign Policy on PBS.

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