France vs. Germany: More state is no alternative

The French economy has performed comparatively robustly in recent quarters. As in previous quarters, the quarterly growth rate between July and September was 0.3 per cent. By contrast, the German economy grew by only 0.1 per cent and thus barely escaped a technical recession. The reasons for the different development of the two heavyweights of the European Monetary Union need not be looked for long. While domestic economic development has traditionally played a major role in France, the comparatively strong economic growth in Germany in recent years up to 2017 was largely due to a well-functioning export industry. After all, exports in Germany account for almost 50 percent of the gross domestic product, in France only 30 percent. Industry is also much more important in Germany, where it accounts for 24 percent of value added, than in France, where it accounts for 12 percent.

The relative dominance of the export sector and industry in Germany proves to be an important cause of economic weakness in times of trade disputes and Brexit uncertainty. France, on the other hand, benefits from the fact that the weights of exports and industry are less pronounced. However, if the global economy picks up speed again, economic growth in Germany is likely to accelerate. Higher growth figures than in France could then be expected again.
By contrast, the role of the state is more pronounced in France. The relative importance of the state sector, measured in terms of expenditure and income in relation to economic output, but also in terms of the share of civil servants in all employees, is much higher. The more significant state share, but also a more active fiscal policy with relief for households and companies, have led to a significant increase in the state’s indebtedness. And there can still be no talk of a reduction in the high national debt of almost 100 percent of the gross domestic product.

This policy is therefore not an alternative for Germany in the short term. Here, economic policy should create the framework conditions so that companies can better adapt to current economic and technological trends. This also includes an increase in infrastructure investment, which has been below average for a long time.

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