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France: Important Update?

Measured by 2011 GDP France is the 5th largest economy in the world, and the 2nd largest after Germany in both the European Union and the Eurozone. In 2011 it represented about 21% of total Eurozone GDP, which in turn was about 19% of World GDP. France's economy is about 25% larger than that of Italy, and about 85% larger than that of Spain (source: Wikipedia). Those statistics by themselves make France important on the world economic stage - and a country that ought to be 'top of mind' with those who trade and invest directly andindirectly (through others) in the financial markets.

Charles Gave is a French economist who among other things heads research firm Gavekal headquartered in Hong Kong. I suggest you take the time to read Charles Gave: "France Is On The Brink of A Secondary Depression", in which Mr. Gave expresses (among other) views that:

  • France currently is "engulfed by a political, economic and moral paralysis", the latter seemingly related at least in part to last week's resignation of France's Budget Minister over personal income tax issues - see French tax tsar's tax fraud blows hole in Hollande's 'total just' promise;

  • France's economic problems are 'particular' to its culture, which favours the public sector over the private sector, in circumstances where France's public sector has grown more than its private sector every year since 1987 (if true, that is 25 years and counting to the end of 2012);

  • France's primary budget deficit is about to 'explode' in 2013 as France will experience higher unemployment and reduced consumer spending (and hence lower tax revenues);

  • the German and French business cycles are beginning to diverge which will lead to excalating Eurozone risk; and

  • until recently Mr. Gave assumed a 'full-blown' French debt crisis would occur in the 2014 - 2017 time frame, but now thinks France is nearer to that happening.

Again, while prognosticators are just that, I suggest you take the time to read Mr. Gave's article - which is much more expansive than I have described and contains numerous charts in support of his views.

You might also want to revisit two commentaries published earlier this year in this Newsletter. See:

Topical Reference: Charles Gave: "France Is On The Brink of A Secondary Depression", from AdvisorAnalyst, Charles Gave, April 9, 2013 - reading time 5 minutes. Also see French tax tsar's tax fraud blows hole in Hollande's 'total just' promise, from The Guardian, April 3, 2013 - reading time 3 minutes.


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