France played a decisive role in shaping not only the euro system but the entire European project. This history has predisposed French leaders to the goal of preserving the euro at all costs. Those costs, as we explained in Part 1 of this article, have become quite insupportable. A new strategy is needed, and France’s role in shaping it will once again be pivotal.
France sits on the fault line between the euro system’s deficit and surplus countries. It runs a large and costly welfare system with high-quality public services, often referred to as the French model, founded on a deep and dearly held national consensus. But unlike the Scandinavian countries, which have a similar preference for expensive welfare, the French model has been financed not by high taxes on income and spending, but by punitive taxes on employment (notably through employers’ social-security contributions) and capital, and by heavy public borrowing. Public debt has surged to about 90 percent in 2012 from about 64 percent of gross domestic product in 2007. Read Part One: Save Europe: Split the Eu ro This emphasis on taxing employment has been the path of least political resistance. It maintains the illusion of a welfare state financed by business, not citizens. The idea that taxing companies is a painless way to finance welfare and public services has reaped chronically high unemployment, eroding competitiveness, weak growth and living standards that are stagnant at best. Excessive Regulation The Ile-de-France region has the highest average labor cost in Europe . The problem is aggravated by excessive regulation — of labor, and of markets for goods and services. Transport, professional services and retailers are more heavily controlled in France than in most other rich countries. The result is higher prices, and higher costs. This burden stifles entrepreneurship. President […]