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France struggles to break old habits

Thursday, May 15, 2014 - 02:31

May 15 - France's economy is flatlining - and that could make government reform targets even harder to reach - while a new law may block foreign companies like GE from takeovers of 'strategic' companies like Alstom. David Pollard asks whether Europe's second-biggest economy can struggle free of its malaise.

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The French may be famous for their fast trains. It's Germany that's still Europe's locomotive of growth - GDP there steaming ahead by 0.8 per cent in the last quarter. That compares to exactly zero in France. Weak business investment and tepid consumer spending adding to a sense of a bigger problem. Jane Foley of Rabobank. SOUNDBITE (English) JANE FOLEY, FOREX STRATEGIST, RABOBANK, SAYING: ''There are concerns about France, and the concerns really are about structural reform, and the lack of momentum towards structural reform in France, and I think these pressures will continue and these data are a good reason why they should.'' There's concern too over surprise news France may do more to protect companies in 'strategic' sectors like transport - for example Alstom - from takeovers by foreign firms - like GE. French Finance Minister Michel Sapin defended a new decree. SOUNDBITE (French) FRENCH FINANCE MINISTER MICHEL SAPIN, SAYING: "Why would France be the only country without the ability to weigh into, not forbid, but to discuss issues with big international companies, when it's about defence, when it's about energy, when it's about water, when it's about sectors which are obviously strategic for a country like ours?" To some, it smacks of populism by a Socialist government bracing for a pounding in next week's European elections. Expected to lose heavily to a right-wing National Front campaigning on a protectionist platform. James Bevan of CCLA says nobody will benefit. SOUNDBITE (English) JAMES BEVAN, CIO, CCLA, SAYING: ''It is the case that France has a bad track record of putting up inappropriate barriers to corporate action and I do not believe that it's ultimately in the interest of Alstom shareholders or, indeed, the French economy to do this.'' In Paris, there was another reminder of the difficulty of pushing a reform agenda. Civil service workers striking over pay freezes. With growth at an apparent standstill, France's debt and deficit targets will be even harder to reach. Though not everyone believes impossible. SOUNDBITE (English) JAMES BEVAN, CIO, CCLA, SAYING: ''There are plenty of opportunities for France to have more rationalisation, more economic liberalisation as part of its move forward, and I do ultimately believe that Monsieur Hollande will embrace change.'' In the short term, it's a tall order. According to one estimate, for France to reach its 2014 forecast of one per cent growth, it will have to average a half per cent rise in each quarter from now on. And the European Commission says it's to examine whether the new decree blocking foreign takeovers is legal.

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France struggles to break old habits

Thursday, May 15, 2014 - 02:31