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Why, Since 1995, The French Growth Is Stronger Than That Of Germany?

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In 2003, Germany, the long time leader of the European economy, was seen as the laggard of the euro area. At some point it used to be called "the sick man of Europe" (The Economist 1999). From 1995-2003, the growth rate recorded was the lowest in the EU (with only 1.3% annually, a record unemployment (4.4 million unemployed in June 2003), a deficit transgressing all the rules of the SGP (from -3.4%), and a public debt exceeding 60%. Between 2000 and 2003, and for the first time since the war, Germany saw 3 consecutive years of stagnant production.

These figures provide a measure of performance against Germany for 10 years, and it is interesting to look back and explain the comparative growth differentials between Germany and France, especially as both countries have much in common in economic terms; each being the other's largest trading partner. However, for several years, the performance of Germany's export was much better than France (and that of the whole OECD). This performance is due, to further improving the price competitiveness of Germany.

Can one therefore speak of a return to strong economic performance while domestic demand is very low, and GDP growth this year revolves around 2%. In this regard, it is also important to correct the subject a little, or rather to update it. Since 2006 the increase in German GDP is slightly higher than that of France (as shown on the graph). Reminder: French growth revised downward by INSEE is estimated at 1.8% for the full year 2007. German growth, also revised downward a few weeks ago, will be 2% for the same year. How can these performance counters recorded by Germany from the mid 90's be explained?

This momentum was mainly due primarily to a purchasing growing power. In contrast to Germany at the same time, the purchasing power of French increased, mainly due to the dynamism of the payroll. After an excessive rise in the savings rate in 1997, returning to a behavior and at a more normal level of consumption in 1998 also helped stimulate growth in France. Public consumption also contributed somewhat that widened the gap, France has in fact benefited from a policy-mix (a smaller reduction in the deficit) more accommodating than in Germany, despite favorable economic conditions.

Finally, real interest rates of short and long term remained lower than in the euro area and Germany in mid 1995 to late 1997, while at the same time increased the Bundes bank, for its , interest rates to counter the acceleration in prices in the eastern part of the country, accelerated due to increased wages without productivity gains.

To conclude this subpart, one can say that the good performance of France vis-a-vis Germany, and thus their growth differential can be explained by stronger demand on the French side, and one can wonder (since it is the theme of the meeting) if it is not as explained under a higher potential growth (to echo the first presentation) that is the subject of the second point.

Tags: French growth; economic growth stronger than Germany; analysis and diagnosis

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