Hollande, Rajoy Claim French, Spanish Economies Recovering

Leaders insist things are looking up, but neither the French nor the Spanish economy is ready to recover.

French president François Hollande welcomes Spain's prime minister Mariano Rajoy in Paris, May 28
French president François Hollande welcomes Spain’s prime minister Mariano Rajoy in Paris, May 28 (Elysée)

The leaders of France and Spain believe their economies are close to recovery even though they have shown meager growth recently, if any.

In a television interview on Sunday, President François Hollande promised that the second half of 2013 “will be better than the first.” He cautioned Frenchmen against pessimism. “We must not succumb to self-criticism,” he said.

Spain’s prime minister, Mariano Rajoy, similarly insisted in a speech last week, “Our economy has turned the corner and we are at the start of a change in trends that will allow us, with effort, to create jobs again.”

Spanish officials are hopeful that growth will return in the third quarter of this year instead of the fourth, as many analysts expect.

However, neither European country looks set for a recovery.

Long road ahead

French growth rates are flat and unemployment is higher than it’s been in fourteen years.

Spain’s economy contracted .5 percent in the first three months of this year. Employment recently increased 2.6 percent, but may fall again after the holiday season.

Both countries also failed to meet their deficit targets last year when they posted shortfalls equivalent to 4.8 and 7.1 percent of economic output, respectively.

Beyond extending tax credits to businesses and subsidizing job creation, Hollande hasn’t unveiled much of an economic plan. His fiscal consolidation effort has consisted mostly of tax increases — which further depressed business activity.

Liberalization

To regain competitiveness, the European Commission in May urged France to cut labor costs, particularly by reducing social security contributions for employers, as well as entitlement spending.

But the one concrete promise Hollande made when he campaigned for the presidency last year was to bring the pension age back to sixty after his conservative predecessor had raised it to 62.

It also seems unlikely that he will challenge his union allies by rolling out significant labor reforms.

Spain has made more progress. Industrial production is rising while labor costs and its trade deficit have decreased. At the same time, retail sales continue to fall and joblessness is stubbornly high.

The European Commission advised it to open up closed professions, liberalize the services industry and expand job retraining programs to enable workers to find employment outside construction, an industry that boomed in the years preceding the downturn, contributing to a “skills mismatch.”

Unpopular leaders

Both Hollande and Rajoy command comfortable majorities in their legislatures yet both have shied away from many structural reforms that could have improved conditions for growth.

Their popularity has suffered as a consequence.

Hollande, a Socialist, is the least popular postwar French president. Just 26 percent approved of his job performance in a recent poll.

Rajoy, who is also battered by corruption scandals in his conservative People’s Party, is even less liked.

A survey last month also revealed that 93 percent of Spaniards believe the economy was in the same or worse shape than when Rajoy took office. 75 percent said they didn’t expect it to improve any time soon either.