By Shawn Tully - Fortune Magazine
July 24, 2015,
It’s not Greece you should worry about.
The way Greece is hogging headlines and tormenting heads of state, you’d think a “Grexit” is the biggest threat to the eurozone’s future. It isn’t.
The greatest danger—and it’s being mostly ignored—is the shocking slide in competitiveness of the single currency’s second- and third-largest economies, France and Italy. One ailment encapsulates Europe’s énorme problème: France can’t sell cars.
Put simply, the cost of making products in France is far higher than in the nations it competes with.
The hourly labor expense of manufacturing a car or steel beam in France rose 17% over the past decade, more than twice the increase in Germany. And even though wages have merely tracked inflation since 2008, costs keep climbing because workers are getting less and less productive. That’s chiefly because France’s manufacturers are so starved for profits that they can’t afford to replace or refurbish antiquated plants and IT systems.
By contrast, Ireland, Spain, and Portugal have all acted while France fiddled, liberalizing their labor markets and lowering unit costs over the past six years by 7% to 12%. The results have been disastrous for France’s competitiveness. In the past 10 years its share of all EU exports dropped from 12% to 9.5%, the worst performance of any major country in Western Europe.
And it’s not just France that’s struggling.
Italy’s products are now even pricier. From the late 1990s to mid-2000s, Italy’s manufacturing costs exploded. “Italy is the nation I’m watching,” says Uri Dadush, an economist at the Carnegie Endowment. “It’s lost an enormous amount of competitiveness to Germany, and things aren’t improving.”
http://fortune.com/2015/07/24/france-auto-sales/
