24/7 Wall St.

The perfect storm of the U.S fiscal cliff, Greece and Spain that threatens the worldwide economy in 2013 may be supplanted by a new one. The International Monetary Fund warned that France could have problems nearly as great as those in Italy, where trouble could drive it into a condition not unlike Spain’s. Because of the size of France’s gross domestic product and its position as the second financial pillar of Europe after Germany, a deep recession there would sharply undermine whatever chance the European Union has to hold its own.

The IMF 2012 Article IV Consultation — Concluding Statement on France said this:

The growth outlook for France remains fragile reflecting weak conditions in Europe generally, but the ability of the French economy to rebound is also undermined by a competitiveness problem. As financial stability risks abate, and with the prospects of a gradual resolution of the euro area crisis, France’s competitiveness gap emerges as the main challenge for macroeconomic stability, growth, and job creation.

France’s industrial sector could fall hopelessly behind those of Germany and large nations outside the EU. The IMF went so far as to mention France in the same breath as Italy and Spain.

The difference in size between France, on the one hand, and Italy and Spain on the other is considerable. The World Bank measured France’s nominal GDP at almost $2.8 trillion in 2011. By the same yardstick, Italy’s was $2.2 trillion and Spain’s $1.5 trillion. However, France’s economy continues to grow, albeit slowly, while the other two are in reverse as their GDPs contract.

The trouble in France is not just based on GDP and competitiveness. Since the start of the European crisis, France sometimes has been able to effectively balance Germany in terms of the process of the bailout of the eurozone’s weaker nations. France’s two most recent presidents, Nicolas Sarkozy and François Hollande, have favored some measures of tolerance toward national deficits as countries like Greece and Spain try to overhaul their economies. And France has even shown some support of stimulus programs to work along side of austerity.

Deep trouble in the French economy, and the way that would change the debate on Europe’s future, would be much worse than the current situation as its neighbors look for some means of financial support beyond that tethered to extreme austerity. A stumble in France makes a possible 2013 perfect storm more threatening than the one most economists have concerns about now.

Douglas A. McIntyre