As the German economy shines, next door France plunges into recession, shedding jobs and losing its top credit rating.
However, French President Nicolas Sarkozy has a plan to save the country, by making it more like Germany.
The right-wing leader will on Wednesday host a “social summit” with unions and employers to try to make France’s job market more flexible and halt rising unemployment ahead of presidential and parliamentary elections this year.
Sarkozy is hoping he can emulate the so-called Hartz labor reforms of 2003 to 2005, which are seen as having helped Germany escape the economic crisis currently gripping most of Europe.
However, this is just one of the many pages that France hopes to borrow from Germany’s economic textbook. Earlier this month, Sarkozy’s government vowed to cut payroll charges on employers and workers to try to make French firms more competitive and to recoup the revenues mainly by raising the value added tax.
The countries with this so-called “social tax” most cited by the government are Denmark and Germany, where it was introduced in 2007. French Budget Minister Valerie Pecresse said it was worth copying Germany’s move to reduce labor costs because this had enabled France’s neighbor to reduce unemployment and remain Europe’s biggest exporter despite the crisis.
Sarkozy also hopes to follow Germany’s lead and introduce a “golden rule” for French government budgets, which would oblige future governments to borrow only to invest and not in order to fund current spending.
However, contrasts between Germany and France are striking.
The German economy does show signs of slowing down — it shrank slightly in the fourth quarter of last year — but overall for the year it grew a healthy 3 percent, making it one of its best years since the country was reunited in 1990.
INSEE, the French national statistics office, says it expects France to fall into a brief recession, with the economy contracting 0.2 percent in the three months to last month and another 0.1 percent in the first quarter of this year.
German unemployment is at its lowest level in 20 years, at 7.1 percent, while in France the number of jobless — at nearly 3 million — is at a 12-year high, at 9.8 percent.
The French government -predicts that its public deficit — the shortfall between tax income and — for last year will be 97.2 billion euros (US$123 billion), or slightly lower than its target of 5.7 percent of GDP.
Germany managed to bring its public deficit down to just 1 percent last year, from 4.3 percent the year before.
Sarkozy’s “social summit” this week is a major plank in his bid to narrow the yawning gaps between the French and German economies.
A central measure to be discussed will be new rules that would allow firms to adjust to an economic downturn by cutting workers’ hours instead of laying them off. A major reason Germany has managed to keep unemployment low is the use of kurzarbeit (reduced working hours), a system that allows firms to reduce workers’ hours, with the government making up some of their lost pay.
Pierre Larrouturou, an author and political commentator, warns against blindly copying Germany’s methods. He said the German model has many positive aspects, but said that the labor reforms there might have made the country’s firms more competitive, but left most Germans with reduced spending power.