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Risk Factors for France’s Economy

Economic structure, indicators and risk

France is a large size economy located in Western Europe. France’s population is an estimated 65 million. The bordering countries to France are Andorra, Belgium, Germany, Italy, Luxembourg, Monaco, Spain, and Switzerland. The country is linked to the mainland of Europe, but is open to the Atlantic to the west. France also enjoys coasts with the Mediterranean Sea to the south and the English Channel to the north. The country has vast range of terrain and a mixed climate and geography.

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The country is well developed in the government and private sector. However, the private sector does experience constant interference from state authorities. As of late the country is trending in a more liberal economic structure to open up free market and be more dependent on market mechanisms. In the 2008 recession France was able to deal with the global recession more than many countries in the European Union because of the large government sector. The recession did affect employment rates, unemployment did increase from 7.4 percent to around 10 percent in 2009. Even still France did make a conscious effort to contain the shock and thus surfaced as one of the most resilient European Union economies. The government still dominants a large section of the economy and makes up over half of the GDP in the country. France is making strides to increase competitiveness and flexibility in the economy but the overall effect is very slow.

The monetary system is based on the Euro (EUR). The latest exchange rate, as of 19-May-2014, is 0.73 EUR per 1 USD. France is considered to be the largest country in the European Union and the 5th largest economy in the world just behind U.S, China, Japan and Germany. According to the World Trade Organization France was the 6th largest export and 5th largest importer of manufactured goods in 2010. France is a place that receives plenty of support from foreign direct investments. The country plays host to over 80 million tourists annually which contributes a large portion to Frances economy.

France is part of the Organization for Economic Co-operation and Development (OECD). The OECD is more than a group of economically important nations, but also a policy assembly covering a large field of economic, social, and scientific areas, from macroeconomic analysis to education to biotechnology. The OECD supports both members and non-members, obtain the benefits and meet the challenges of a global economy by fostering economic growth, free markets, and proper use of resources. Each substantive area is covered by a committee of member governmentofficials, supported by Secretariat staff.

Political structure and risk

Not similar to other European presidents, the office held by the President in France is pretty influential, specifically when dealing with foreign policy, even though the prime minister and appointees are expected to run the country. The French President is the person who designates the prime minister. However, the French National Assembly can shoot down the appointee, so it makes for a good check and balance with the president. France is a member of the European Union and the European Parliament is seated inStrasbourg, capital of France’sAlsaceregion. The Senate and the National Assembly which makes up the Parliament, constitutes the legislative section of the government and is responsible for developing and voting on laws. France law system is firmly established with an independent judiciary. Owners of property are secure and contract enforcement is upheld. Another major concern for many countries is intellectual property. Intellectual property is respected in accordance with international standards. France was called out in a 2012 OECD report to prosecute French officials who had bribed foreign officials to win contracts. In this regard France needs to work on their transparency and anticorruption stance.

Financial structure, indicators and risk

The income tax rate for individuals at the top of the scale is 45 percent and corporate tax rate is just under 34 percent. There is also a value added to (VAT). VAT is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. The overall burden of tax is around 44 percent of gross national income. Frances government expenditures makes up an estimated half of the domestic economy, and the public debt has reached over 90 percent of GDP. The process to start a new company in France is pretty straightforward, with no minimum capital required, but if a company is looking for labor, the labor market continues to be sluggish. The strong labor codes for worker protection seem to have hurt competitiveness and employment prospects.

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European Union members have few non-tariff barriers to trade and on average a 1.1 percent tariff rate. More recently price controls have impacted a many products and services, and state subsidies have increased under the current regime. The financial sector continues operation of a few foreign banks but the majority is strong state influence.

Industry in France is well established and includes sectors that they are world leaders in, such as fashion, perfume, nuclear energy, wine, cheese and defense. France alongside Germany, United States and Japan has the largest number of passenger cars and commercial vehicles. France has a diverse economy with areas like Machinery and Chemicals, Metallurgy, Automobiles and Aircraft, Electronics, Textiles, Food processing, Tourism and Energy Production.

France’s trade is one of the largest in the world. France exports and imports various raw materials, automobiles and electronic products. In 2010, France’s exports totaled $456.8 billion while imports totaled up to $532.2 billion. Agriculture makes up and estimated 2.1 percent of GDP, while industries contributed 19 percent, 78.9 percent come from the service sector. Agriculture still remains one of Frances strongest economic areas in the best and worst of the times. Trade declined due to the recession-affected demand. However, the well developed agriculture sector has helped France’s economy, along with the services and industry sectors, in being self sufficient.

Overall risk indicators

Frances economy continues to be idle. President Hollande is not likely to act quickly to reform the French economic model. Some believe that the capability of Hollande to execute concentrated reforms will be met with restraint by divisions within his own party and some of his main supporters, and resistance from the abundance of special interest groups which will hinder unilateral reform a make it a difficult and compromised process. France is a wealthy and modern country. The industry in France is large and diverse. France growth is forecast at an estimated .5% to 2% over the next few years based on the slow fiscal progress. However, even with the slow growth the strength and size of France makes it a low risk economy in the near future.


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