BIZMOLOGY — What a difference a decade or so can make — and not just on the football field. As Germany continues to enjoy its victory in the 2014 World Cup soccer tournament, the country also is the economic engine of the European Union. Though the region continues to struggle economically in the aftermath of the worldwide recession, Germany has performed considerably better than neighboring France on both the economic and football playing fields.
Though you should not read too much into football results, the 2014 World Cup in Brazil could be used to illustrate France’s decline over the past decade and a half, especially when compared with Germany. France won the 1998 World Cup and the 2000 European Football Championship, while Germany hit rock bottom and was eliminated in the group stage with no win and only one goal scored.
Since then, however, France’s performance on the football field has deteriorated through the 2000s and the early 2010s. In 2014 France only narrowly managed to qualify, while Germany won nine out of 10 qualifying games and tied one. After managing to get through the group stage, the Equipe Tricolore was eliminated in the quarter finals by Germany, which went on to win the World Cup title.
Outside football, France has also been overtaken economically by Germany in the past 10 years. Things looked completely different at the onset of Chancellor Gerhard Schroeder’s “Agenda 2010,” a package aimed at boosting domestic competitiveness by overhauling the country’s social security systems, including the labor market.
In 2003 Germany was the sick man of Europe. Unemployment stood at 11.2% at the end of December 2004, compared with 8.9% in France. In terms of real GDP growth, France outpaced Germany for 11 straight years between 1996 and 2006 and again in 2008-09.
However, since then things have changed dramatically. Three successive French presidents (Chirac, Sarkozy, and incumbent Francois Hollande) were either unwilling or unable to implement painful, but much-needed, reforms in France, while Germany’s Angela Merkel has largely implemented Schroeder’s economic reform plan.
As a result, unemployment in Germany fell to 4.9% in July 2014, less than half of the French unemployment rate of 10.3%. In terms of international competitiveness, France also fell behind Germany. Its real unit-labor costs have increased by 1.3% since 2009; Germany’s fell by 2.8% in the same period.
In the World Economic Forum’s Global Competitiveness Report 2013-14, France lost two positions from the previous report and is now ranked a poor 23rd, far behind Germany, which gained two positions and is now ranked the globe’s fourth-most-competitive economy.
In addition, resistance to long-overdue labor market reforms in France remains strong. President Hollande’s proposals to cut labor costs by 30-35 billion euros are opposed by the traditionally left-leaning trade unions and would increase France’s already excessive fiscal deficit. Strike action has increased since the government announced its plans and several left-leaning ministers resigned from office in August.
With Hollande’s approval ratings in free fall amid the high unemployment rate, it remains to be seen whether he can push his reform proposals through parliament. D&B economists forecast neither a significant drop in the French unemployment rate nor any noteworthy acceleration of real GDP growth in the next two years.
Meanwhile, the economic problems are at least indirectly impacting French football. Shortly after coming into office in 2012, President Hollande increased the income tax rate for incomes above 1 million euros to 75%. Besides French celebrities like Gérard Depardieu (who emigrated to Russia) and business leaders (like the boss of luxury company LVMH), the group that is impacted the most are footballers.
Luckily for the French national team, the French league did not follow the air traffic controllers and railway workers and stage a strike — not yet anyway.