The size of France’s political crisis seems to be out of proportion with the country’s real situation. To be sure, France has been severely hit by the global financial crisis and economic downturn. But the consequences have been somewhat less dramatic than in many other European countries.
Two of the three Baltic countries and Greece are in deep financial distress. Much the same is true of Portugal, Spain, Hungary, and Iceland. Ireland, Belgium, Italy, and the United Kingdom are still under threat, owing to large public debts or current-account deficits. But the Netherlands, and Austria – and, to a lesser extent, Germany and France – are faring slightly better.
In the short term, the situation in Germany is less severe than in France. Its trade balance is positive, and total public debt is not as high as it is in other countries. Despite high unemployment and low growth, Germany does not face a short-term threat to macroeconomic stability, though the country’s population is declining and aging, implying huge challenges in the decades ahead.
The short-term situation for France is more worrying. The fiscal deficit is higher than 6% of GDP, the trade balance is negative, and public debt – albeit lower than in all other European countries except Germany and the Netherlands – is nonetheless 80% of GDP. France urgently needs structural reforms – and thus a strong government.