25 April 2014

BIS/Noyer: The outlook for the economies of the euro area and France

Christian Noyer, Governor of the Bank of France stressed the return to positive growth in those countries most affected by the crisis and identified taxes and social security contributions as well as rigidly regulated market as main handicaps for the French economy.

Euro area

Although the strength of the rebound varies across countries, it is important to highlight the return to positive growth in those countries most affected by the crisis and which are of major importance to the euro area: I'm thinking above all of Spain and Italy, where exports have rebounded sharply and are currently driving economic activity.

On a financial level, we are also seeing a significant return to normal in the euro area:

• bond markets in periphery countries are continuing to stabilise and interest rates have come back down to sustainable levels, with several periphery countries or programme countries recently managing to obtain market financing at perfectly satisfactory rates;
• fragmentation within the euro area is decreasing - as shown for example by the fall in liquidity surpluses or Target2 balances;
• credit dynamics are still subdued on the whole, due to continuing weak demand and ongoing bank deleveraging. But we are confident that the asset quality review which we are undertaking and the upcoming stress tests will revive confidence and thus boost credit. 

Outlook for the French economy

France has some major strengths for competing in a global economy: dynamic demographics, a well-trained labour force, expertise in strategic or high-tech sectors such as mathematics, aeronautics and nuclear engineering, and excellent infrastructure. We also have the advantage of an efficient financial system which has always managed to play its role in financing the economy. French banks have made the necessary efforts to meet the Basel 3 solvency requirements, and are also improving their liquidity levels in a highly favourable monetary policy environment.

But our economy has two main handicaps: first, taxes and social security contributions are too much of a burden, particularly for companies, because of our excessively high level of public spending; and second, our labour market and goods and services markets are overregulated and excessively rigid.

As far as I can see, France's main priority today is to ensure that it can take full advantage of its strengths by implementing structural reforms that reduce the burden of taxation and simplify administrative formalities. The government has made it clear that it shares this view of the causes behind our current problems and of the solutions that we need to implement as soon as possible.

It has indeed begun implementing major structural reforms, and is committed to going further, notably on firms' cost competitiveness and on the reduction of the public deficit through greater cost efficiency in public administration.

Full speech

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