“Putting the dust under the carpet.” This Thursday, October 5, the expression took on its full meaning, when Roland Lescure, Minister Delegate for Industry, spoke on the stage of the Pierre-Mendès France conference center, in the very heart of Bercy. A few seconds earlier, Guy Maugis, president of the Franco-German Chamber of Commerce and Industry and boss of the French branch of the multinational Bosch, had kicked off the ninth edition of the Franco-German Day of the economy, recalling “differences of opinion, which are not new” between France and Germany, and adding: “I am delighted that they are coming to light today. This is the first step towards reaching a consensus.”
As a good politician, Roland Lescure was careful, during his speech, to emphasize the bickering between the two countries, preferring to discuss the European challenges of tomorrow, while praising the strength of the Franco-German relationship. As soon as the speech by Sven Giegold, State Secretary to the German Minister of the Economy, was finished, he fled. He was expected at the Bpifrance Inno Génération entrepreneurs event, a hundred meters further, at the Accor Arena. Europe’s place at the geopolitical level, artificial intelligence or even technological sovereignty, the various conferences offered that day to the public avoided angry subjects.
The German economy is suffering, France is happy
However, for several months, relations between Paris and Berlin have clearly become strained. From nuclear power to the European electricity market, including the automobile, issues subject to friction continue to pile up on the table. Are the Germans all the more irritable that their economy is slipping? The country’s main institutes anticipate a decline in GDP of 0.6% in 2023, when France’s growth is expected at around 1%. Just a month ago, Bruno Le Maire dared, after a meeting with German ministers in Berlin, to praise the merits of the French. The tenant of Bercy welcomed this editorial with the provocative title, “France is Germany but better!”, published a few days earlier in the weekly Der Spiegel, before all the same reminding that there was still “a considerable way to go”. Its release was not to everyone’s taste. Especially since in mid-August the magazine The Economist had already piqued Berlin with the return of a question on the front page: “Is Germany once again the sick man of Europe?”.
In reality, the situation is more complicated. First of all, the bad luck of our close neighbor is not good news for France. Germany remains our largest trading partner. And when his health fails, ours inevitably suffers the consequences. Then, the match seems lost in advance. In 2022, the GDP of Europe’s leading economic power peaked at 3,858 billion euros, a difference of more than 1,500 billion euros with that of France. Our trade balance – the difference between the amount of our exports and that of our imports – has been negative since 2003 and has been deteriorating for several years, while that of our neighbor has remained positive for more than twenty years. “The comparison is always a little difficult, because these are countries which have different structures. Germany has derived its growth from external demand, with very low household consumption. France, for its part, has performances at exports are much less important, and, conversely, sees its growth driven by domestic demand”, observes economist Isabelle Méjean, professor at Sciences Po and member of the Franco-German Council of Economic Experts.
The German strategy pays off
We have to go back to the beginning of the 2000s to understand how Germany managed to sustainably outperform France. At the time, the government of Gerhard Schröder took advantage of globalization to develop German industry and focus almost entirely on exports, while taking measures intended to reduce wage costs. A profitable strategy. “In 2003, Germany made all these reforms, which have since produced their effects. Let us remember that twenty years ago it was already said that Germany was the sick man of Europe”, underlines Frédéric Coirier, co-president of the Movement of mid-sized companies (Meti).
During this period, France, for its part, saw its industrial base melt away at lightning speed. “From 2000 to 2016, the number of companies in this sector present in our territory was halved. In Germany, it remained strictly the same,” recalls Denis Ferrand, general director of the Rexecode institute. As a result, there are today 2.5 times fewer mid-sized companies (ETI) in France than across the Rhine. A chasm which has, however, stopped widening thanks to Paris’ proactive policy since 2017 in terms of reindustrialization and taxation.
The end of the bleeding?
“There are encouraging signs. The industry’s share is stabilizing, but we need to rebuild an export base. It’s getting less and less bad, it must be said, but it’s a marathon and not a sprint.” estimates Xavier Ragot, president of the French Observatory of Economic Conditions (OFCE). Reduction in production taxes and corporate taxes, reform of the labor market, etc., since coming to power, Emmanuel Macron has increased his actions towards businesses. “It is too early to declare victory, because on these policies we need continuity,” warns economist Philippe Martin, former deputy president of the Economic Analysis Council.
In a recent report, the Rexecode Institute also recommends continuing the effort undertaken to reduce production taxes to gain competitiveness vis-à-vis our European neighbors, and more particularly vis-à-vis Germany, where the tax pressure on companies is less. “At a given moment, we are all French, we have this desire to contribute to the economy. The people who went to produce elsewhere did not do it against France, but because they could no longer necessarily do so in the territory taking into account production costs”, assures Frédéric Coirier, from Meti. If the return of French companies is confirmed, a virtuous circle will set in. “If you attract industry to your territory, production costs decrease: the more you produce on a large scale, the more an industrial ecosystem develops, with suitable suppliers who are not far from you, from training. You benefit also technological progress”, explains Philippe Martin.
The penalizing recruitment crisis
The fact remains that to support the return of the industry, we will have to recruit. The problem: France is currently facing an unprecedented skills crisis which risks getting worse if the executive does not take matters into its own hands. And all sectors of the industry, without exception, are struggling to hire today. “There is not yet a real debate on higher education, although there is a problem of attractiveness of scientific and technical training, and a part of the youth does not access higher education. “For a central long-term subject to become a political subject, unfortunately there needs to be an accumulation of bad news”, regrets Xavier Ragot of the OFCE.
On the other hand, France is capable of taking the lead in the energy transition, because it could prove much more costly across the Rhine, where it will require heavier investments. Germany is still very dependent on coal and gas. “This is a positive point for France, but we know that we will have to act collectively between European countries vis-à-vis the United States and China,” adds Xavier Ragot. To support its industry and assist it in its greening, Berlin plans to release significant subsidies, while pointing out the competitive advantages offered by the French nuclear fleet. Yet another subject of tension to resolve. And, once again, the European Union should have the last word.