Download France`s problem is its economy disparity with Germany, which has

Market Insight
May 17, 2017
France’s problem is its economy disparity with
Germany, which has been put off for 5 years
Hajime Takata, Chief Economist
Emmanuel Macron won the French presidential election on May 7 as expected, and the markets have
responded favorably. The markets were relieved by not having to face the risk scenario of an exit from the EU,
which was on the agenda if Marine Le Pen had won. So, was this because European uncertainty had
disappeared or because French uncertainty has waned? The author believes there was certainly some short-term
stability in the market, but it is possible that the issue has merely been put off until the next election in 5 years
time.
The uncertainty in France is caused by the decline in its influence and the flip side of Germany being seen as
the sole winner. Chart 1 illustrates the movement in current account balances within the Eurozone. Germany is
the only winner, while France is one of a few current account deficit countries, and the disparity within the
region is growing as the deficit expands. South European countries, which were the main source of the
European financial crisis, have now become current account surplus countries. However, this has been at a cost
with those South European countries suffering high levels of unemployment due to extremely austere fiscal
policies. The dissatisfaction with such structural problems is leading to the anti-EU movement in France and
elsewhere. Macron’s win will not alter this situation. As long as the structural problems persist, potential
dissatisfaction will only increase.
EU sceptic parties did not win the Netherland lower house elections held in March 2017 nor did they win the
recent French presidential election. However, the percentage of votes directed towards such parties has
definitely increased. French public opinion has not yet reached the “watershed” that would lead to the selection
of an EU sceptic party, but a gradual move towards that “threshold” is possible. The original purpose of the EU
and the euro, as the common currency, was to achieve peace within Europe by containing Germany. France has
always taken a lead role to achieve this. However, the common currency has led to increased economic
disparity, with France having a decidedly different economic strength than Germany. The French-led EU
scheme aimed at reeling in Germany has clearly been a standalone win for Germany. Ironically, France’s
foundation of existence is being rudely shaken by this “inconvenient truth”.
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Market Insight
May 17, 2017
[ Chart 1: Current account balances in the Eurozone ]
(Proportion of Eurozone nominal GDP, %)
4.0
Other
Five South European Countries
France
Germany
Eurozone
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
2001
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Note: Five South European Countries refers to Greece, Ireland, Poland, Spain, and Italy
Source: Made by Mizuho Research Institute Ltd based upon Eurostat
This publication is compiled solely for the purpose of providing readers with information and is in no
way meant to encourage readers to buy or sell financial instruments. Although this publication is
compiled on the basis of sources which we believe to be reliable and correct, the Mizuho Research
Institute does not warrant its accuracy and certainty. Readers are requested to exercise their own
judgment in the use of this publication. Please also note that the contents of this publication may be
subject to change without prior notice.
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16 (CY)