A Troubled Economy

For months now, a creeping economic malaise has been afflicting the French economy. Unemployment stands at its highest in a decade, while first-quarter industrial production fell 1.6% from a year earlier. Worst of all, the country's fifth five-year economic plan -- now half completed -- appears to be something of a bust. As Finance Minister Michel Debre admitted last week: "It seems that this year the objective of the plan will not be attained."

The French blame their woes on declining foreign sales, especially to deflated West Germany, which in the past has absorbed up to 23% of France's exports, but in the first quarter of 1967 dropped to about 21%. Overall, between 1962 and 1966 France's exports were up 59%, while imports rose 72%. De Gaulle's Common Market deficit alone was $245 million.

Earlier this month the government announced a series of reflationary measures aimed at perking up the economy. Mandatory deposits on new cars are to be lowered from 25% to 20%; finance companies can increase lending capacity by 10%; the building sector, hardest hit of all, will be stimulated by a variety of credit improvements. In addition, a three-year-old price freeze on industrial products will be reduced and export incentives increased. If exports increase, these measures may help bring the budget closer to balance--a hope to which the French always cling. Analysts reckon that the deficit will grow to $1.2 billion by year's end against a $24 billion budget.

There is every reason to believe that France's economic ailments go deeper than the proposed cures would suggest. A full one-third of France's industry is quasi-government controlled, and its 160 state-owned companies piled up deficits of $1.1 billion in 1966. Uninspired management, crushing labor disputes and general inefficiency are the rule. These stigmas--plus the fact that taxes gobble 45% of the national product--give French industry the lowest profit margins in the West.

French consumers understandably have exhibited little confidence in the economy. Demand has risen only 5% in twelve months, and 100,000 recently constructed apartments remain vacant. Nor have recent government pronouncements led consumers to believe in a brighter future. Earlier this month--concurrent with news of the reflation plan--was word that Paris Metro and bus fares would be boosted by 60%. Railway fares will be increased as well. The week before, Frenchmen learned that social security, which absorbs almost a third of the nation's taxes, has a budget deficit that has grown from $400 million to $600 million in one year.

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