France

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In 1995, France ranked 16th and slipped to 25th in 1997. The most obvious reduction was in the rule of law component--from 10.0 in 1995 to 7.0. Nevertheless, the credibility of its legal structure is far from seriously damaged and remains reliable.

France's monetary administration pursues strict policies of price stability. Its achievements culminated in an inflation rate of 1 percent in 1997 with an inflation variability of 0.5 for the recent five years. Citizens are free to own foreign currencies and the banking sector is fully deregulated. But, in the area of capital transactions with foreigners, constraints still exist. As one of the countries pushing European integration energetically, its foreign-trade sector receives good scores.

France's problem areas are the large share of government consumption, huge transfers and business subsidies, and a stalled deregulation and privatization program. Government consumption, 24.2 percent (1997) of total consumption, resembles the shares of leading western industrial countries. A significant portion of the economy, 28.8 percent of GDP, was redistributed as transfers and subsidies, financing double-digit unemployment (12.3 percent) and distorting market competition.

The real GDP growth rate for 1997 was 2.3 percent but going forward with structural reforms within the government apparatus and more liberalization efforts would enable higher potential growth rates.

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Last Modified: Monday, January 10, 2000