French Economy in Tailspin

France has had some serious economic issues in the last several years. There was optimism that they were starting to edge their way out of it. Alas, they're sinking deeper:

The French economy fared worse than expected in the second quarter of 2005, growing just 0.1 percent, the official statistics agency Insee said Friday.

Economists had forecast growth of 0.3 percent for France's gross domestic product for the second quarter.

The result means the French economy is not growing fast enough to deliver the government's annual growth target for this year of close to 2 percent of GDP. It also means France is lagging behind other nations using the euro.

The growth estimate came a day after the European Union's official statistics agency Eurostat said that euro zone GDP grew 0.3 percent in the same period.

This is even more telling:

Flagging consumer spending, however, which has been inhibited by a loss of confidence amid consistently high unemployment, remains the main cause for France's slowing GDP growth and is a key reason for concern in coming months.

The high unemployment puts a heavy burden on the liberal social policies that are a trademark of the nation. Here's (link in PDF) a dated, yet good report on British and French policies with regard to unemployment.

While the ASA did not survive the worsening of the economic climate in the late 1970s, benefits for the French unemployed do seem to have remained considerably more generous than those of
their British counterparts, in terms of both their level and their duration.

In 1997, the median replacement rate of unemployment benefits in France was 56% of previous income, while the equivalent figure for the flat-rate British benefits can be calculated at around 25%. While benefits under the JSA regime are paid without a means-test for a maximum of 6 months in Britain, the duration of benefit entitlement can be as high as 5 years in France, notably for the older unemployed (Holcman, 1997:45).

56% of a citizens base pay for a period of five years is a significant onus placed on the government. The incentive to create jobs or to seek new employment is severely limited.