Macron crisis: How France’s economy could be ‘worst hit’ by coronavirus pandemic

In Monday night’s televised address, French President Macron promised that companies at risk of bankruptcy will receive government grants, and businesses will be given tax holidays. The move comes as part of a £275billion support fund for struggling companies as France’s leader also declared “war” on the coronavirus. He said: “We are at war with the coronavirus.

“Meeting friends in the park or in the street will no longer be possible. It is a question of limiting as much as possible all contact beyond the home. Only necessary movements will be undertaken.

“France has never had to make such decisions in peacetime. They have been taken with one aim: to protect us.”

While Macron’s huge support for business will provide comfort for many in France, analysis by some still shows causes for concern in the country which is now in lockdown.

Dalibor Rohac, a scholar at the American Enterprise Institute in Washington, warns that France and countries in Southern Europe may not be as prepared for the coronavirus economic shock.

He says in his article for Politico: “The countries hit the worst by the pandemic – Italy, Spain and France – are the ones that have the least amount of fiscal breathing space, irrespective of the European Commission’s relaxation of fiscal and state aid rules on Friday.

“Going into the current crisis, Italy’s debt-to-GDP ratio was 134 percent. Spain’s and France’s were close to 100 percent.

“With spreads on their bonds skyrocketing, a sizeable fiscal stimulus is out of the question.”

According to research by RaboBank – a Dutch multinational banking and financial services company – the picture for the eurozone looks bleak and France and Germany are also among the countries most at risk.

The research – carried out in March – states that a eurozone recession is very likely and cites Italy among the countries likely to face a severe impact.

It also warns that inflation in the eurozone is going to be “volatile” as supply and demand shocks work in opposite ways, but ultimately downward pressure on inflation is expected to prevail.

The key reason France and Germany could be particularly vulnerable compared to other eurozone countries is because of their exposure to supply stocks originating in China.

RaboBank’s data shows dependence on both Chinese inputs in their manufacturing industry and final goods.

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Germany is among the most exposed only to be superseded by France due to the latter’s dependence on Chinese industry inputs, the report says.

In regards to total industry inputs to European countries’ GDP, France ranks highest with 3.1 percent while Germany is third with 2.6 percent.

Even more concerning for France President Macron, his country ranks bottom in terms of financial-shock absorbing capacity, according to RaboBank’s data.

The report summarises that overall Germany and Austria are most exposed to the combined demand and supply shock in China.

Mr Rohac also hit out the EU and European Central Bank’s leadership during the coronavirus outbreak in Europe.

He described the EU’s response as “pitifully weak” and hit out at ECB President Christine Lagarde for “dramatically misreading the politics of the moment”.

As Europe begins to take increasingly draconian measures to help fight off the coronavirus pandemic, it is becoming clear the economic impact will be felt across the continent.

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