Let's talk about France ...

France is not doing so bad (in the short and long term), according to Krugman:

More On Not-So-Miserable France

Following up a bit further on my earlier discussion. The French economy gets extraordinarily bad press in this country, and this attitude spills over into some allegedly serious economic analysis too. I don’t have time to dig up examples now, but not that long ago quite a few investment banks etc. were pegging France as the next crisis country, about to go the way of Italy or even Portugal any day now.

And there was actually a spike in French borrowing costs for a while. Here’s the France-Germany long-term interest differential:

You can see the surge from mid-2011 to mid-2012. In retrospect, however, it’s clear that this was a De Grauwian liquidity panic, arising from the fact that France didn’t have its own currency and that it wasn’t clear whether the ECB would act as a lender of last resort. Once the ECB sorta kinda indicated that it would, in fact, do its job, the panic subsided, and France is no longer under severe financial pressure.

True, there’s still a French premium, which may reflect some lingering solvency concerns. In reality, however, France does not have a large structural deficit. And while it has an aging population, the demographic problem is actually much less in France — with its relatively high fertility — than in the rest of Europe, Germany in particular.

But hasn’t the French economy performed poorly in the crisis? Yes, compared with the United States or Germany. But it’s not in the crisis camp, at all. Here’s a comparison:

Most people, I suspect, think of the Netherlands as being like Germany — doing fine thanks to stern fiscal virtue and all that — while those self-indulgent French slide into economic decline. Actually, France and the Netherlands have basically the same performance.

Just to be clear, I’m not saying that all is well with France. France is doing badly; so are we; so is almost everyone. The widespread notion that France is in big trouble is, however, not based on reality. And it’s hard to avoid the suspicion that it’s ultimately political: with their generous welfare state the French are supposed to be collapsing, so people assume that they are.