A must-read report on people's attitudes to competition

Economists sometimes get taken to task for wishing competition onto people, and there are often proponents of the idea that there are less divisive and less conflicting, or more collegial and more cooperative, approaches to life.

So it's extraordinarily useful to have a comprehensive survey of what a large group of people actually think about competition. It covers the Eurozone, and it's the latest in the European Commission's series of what they call Flash Eurobarometers, or "ad hoc thematical telephone interviews conducted at the request of any service of the European Commission. Flash surveys enable the Commission to obtain results relatively quickly and to focus on specific target groups, as and when required".

This latest one is on "Citizens' Perception about Competition Policy", and it's terrific. If you've got the slightest interest in competition, it's a must-read. The summary is here (pdf) and the full report is here (also pdf).

First of all, let's deal to the canard that people would prefer the quiet cooperative life without the jostle or hassle. The two graphs below say it all.

It's also true that people can see the other side of the coin, and are fully aware of the downside of having inadequate competition, as this graph shows.

That's the guts of the results, but there's lots more that's also fascinating. For example, some competition authorities - including, I'd suggest, our own - take the view that it's too hard to measure the state of competition, and if you wanted to, you could certainly convince yourself that HHIs are imperfect and you can't measure price to marginal cost and so on and so forth. Funny, though, that the person in the street in Paris or Prague doesn't have much difficulty seeing a lack of competition when it sneaks up on them, as this next graph shows.

You couldn't ask for a better roadmap of competition problems (and indeed you could easily see how repeated surveys along these lines would help show any competition authority whether it is making progress). 

And it gets better: if you go to the full report, you can see the country/sector breakdowns where you can immediately identify the hot spots. If the European Commission was born anew today, knowing nothing whatever about the state of competition across the Eurozone, in five minutes it would establish (from pp17-21 of the full report) that it should be looking at the energy sector in Bulgaria, Cyprus and Latvia; at the transport sector in France, Finland and Ireland; at the pharmaceutical sector in France, Ireland and the Netherlands; at telecoms and the internet in Croatia, Belgium and Spain; at food distribution in Finland, Greece and Lithuania; and at financial services in France, Ireland and Denmark. That's an immensely powerful guide to competition policy and enforcement priorities, and a very suggestive input into the kinds of structural reforms many of these countries need to undertake.

I won't go on much further: it's a great report, and you should really read it for yourself. I'll finish with just one final, and I thought somewhat poignant, point, and that's how attitudes to competition have changed. Some of those countries in the EU28 are relatively recent converts to the market economy, and back in 2009, when the previous survey was run, there were, for obvious reasons, relatively high levels of "don't have a clue, mate" responses to how competition feels and what it does or does not achieve.

Fast forward to 2014, when this latest survey was taken, and the "don't knows" have shrunk. In Romania, for example, they used to make up 16% of the populace: now it's only 2%. And where did those votes go? Overwhelmingly towards a more positive view of competition: when exposed to the wicked market ways of the West, 90% of Romanians now agree that competition gives consumers more choice, a 17% rise in just five years. Those who disagree have dropped from 11% to 8%. And there are similar shifts in opinion in Hungary, Lithuania, Bulgaria and Estonia, and smaller shifts in the same positive direction in Poland and Latvia. 

It's not completely universal: the Czechs, for example, don't seem to have made much of a success of their move to a more market economy. But as a general rule when people who have never had decent choice or fair prices get them, they love it. Something to remember for the next time a politician is afraid of the backlash from some protected group whose privileges are being exposed to competition: the vast majority of citizens will be behind you.

We overpay, too

Last week I posted about some new research from European Commission economists showing the existence of pay premiums in a range of EU countries in favour of public sector employees relative to private sector employees, which did not disappear when the compositional nature of the two workforces was corrected for (the public sector, for example, tends to have more-educated people on board). Like for like, the public sector paid more, sometimes substantially so.

Perhaps naively, my first guess about New Zealand (what I might call my "prior", if "prior" means knowing nothing at all about the local issue or its literature) was that we might not replicate the typical EU pattern, and I asked if anyone knew whether there was local research on the topic.
And Eric Crampton over at Offsetting Behaviour did - thanks, Eric.

Eric had blogged about the issue two years ago, referencing two papers by Prof John Gibson at Waikato, one based on 2005 data and the other looking at 2003-07.

The result, I'm afraid, is that we appear to have a public sector pay premium, too. The first paper found (p63) that "Taking account of a wide range of worker characteristics and attitudes, job attributes, and the effects that jobs have on workers and their family life, there appears to be a pay premium of 17-21%, which is not due to compensating differentials". And the second one found (quoting from the Abstract) that "Comparing with observably similar private sector workers shows that public sector workers have received a pay premium that has grown in each year, from almost zero in 2003 to 22 percent in 2007". You might well think that the expanding premium had something to do with the government of the day: I could not possibly comment.

I introduced Gibson's results by saying that we "appear" to have a public sector premium. The reason I'm a little cautious is that the "like for like" comparisons between public and private sector jobs aren't quite as comprehensive as they might be (due to data limitations, nothing to do with how Gibson went about it). The European Commission research was able to correct for different occupations and different levels of managerial responsibility, whereas the Gibson comparisons weren't (the closest was a 'years of education' criterion, which could be a rough proxy, but isn't the genuine article). I wonder if anyone's minded to have a go at an update, with newer data sources - Statistics New Zealand has now got very extensive linked employer-employee datasets that you'd think would allow a very fine comparison of public and private sector pay for comparable work.

Why does any of this matter?

For starters, efficiency reasons: there's no reason for us to be throwing taxpayers' dollars out the window for work that's being overpriced. Especially on this scale: the premium is a really big number. Just looking at the core public service alone (government departments and the like), a premium of 20% across the wage bill is in the region of $600 million (44,500 FTEs at an average base salary of $68,561 adds up to a payroll of $3.05 billion, going by the numbers in the latest Human Resource Capability Survey from the State Services Commission).

And then there are the fiscal stabilisation issues. Like a lot of other western governments, we're trying to get our fiscal affairs back into order. If a public sector pay premium exists on this scale, then reducing it could be a more preferable way of helping to balance the books than (say) outright cuts in services valued by the public. In fact, we may be headed in this direction de facto: quite a few outfits around the public sector are being held to baseline budgets for the next three years that are frozen in nominal dollar terms. That doesn't prevent further public sector pay increases, but it makes them harder to concede and facilitates eroding the premium.

Overgenerous public sector remuneration can also be on the of the ingredients to walk you into fiscal problems in the first place. I mentioned last week that the European Commission research found that the fiscally challenged PIIGS (Portugal, Ireland, Italy, Greece, Spain, and it's my PIIGS terminology, not the Commission's) all showed up badly for overpaying the public sector. Since then I've read a European Central Bank working paper, 'The public sector pay gap: in a selection of Euro area countries'. It's not quite as recent as the Commission research, and doesn't cover as large a sample (10 countries rather than 26), but it found exactly the same thing (p21) : "Notable differences emerged across countries, with Greece, Ireland, Italy, Portugal and Spain exhibiting higher public sector premia than other countries".

It's no comfort then to observe that even on a low-ball estimate of the public sector premia in the PIIGS (the ones in Table 9 of the ECB paper), they ranged from 10.9% (Portugal) to 17.2% (Spain). They're lower than the numbers Prof Gibson found for New Zealand.

Could it happen here...

I was fossicking on The Irish Economy site, mostly to follow-up on the news that Ireland plans to come off the IMF/EU life-support machine next month, and I came across a post by Trinity professor Philip Lane, 'Public-Private Wage Gaps: EU Evidence'. This in turn took me to the source paper, a European Commission Economics Paper, 'The gap between public and private wages: new evidence for the EU', which is summarised here and available in full as a pdf here.

Here's the key finding.

Start with the bottom line. Reading left to right, the first column, 'Total difference', is the percentage difference between wage rates in the public sector and the private sector across the whole European Union. On average wage rates are 10.5% higher in the public sector (or were, anyway, on these 2010 numbers). The second column is how much of this premium can be explained by a vector of the usual suspects - education levels, age, occupation, level in the managerial hierarchy and what have you. As it happens, 6.9% of the EU-wide public sector premium of 10.5% can be explained by these compositional effects. And that leaves the third column, the 'unexplained' part of the premium, which I'm going to interpret as the extra wages you get merely for being in the public sector.

I've highlighted Ireland in yellow. Enough has been said already about the fiscal indiscipline of Irish administrations during the Celtic Tiger days, so I won't belabour it, but I will just observe that the Irish were the most profligate in the entire EU for overpaying public sector staff (by 21.2%), edging out Cyprus (20.9%) and Luxembourg (20.4%). It's noticeable, too, that all the PIIGS showed the same pattern of showering largesse on the public sector - Portugal (PT, 11.9% premium), Ireland (IE, 21.2%, as we saw), Italy (IT, 10.5%), Greece (GR, 8.2%) and Spain (ES, 15.1%).

You might conclude that the fix is wage cuts (as the Irish have since done) or at least a prolonged wage pause in the public sector until the premium is eroded by increases in the private sector. As the authors note, though, it's not that straightforward. There are systematic patterns to the overpayments: as they say (p28), "although a positive wage gap is found for public sector workers, this is mainly
concentrated on lower-skilled workers, typically occupying lower job positions", which in turn means that "fiscal consolidation measures aiming at reducing the public wage bill may find difficult trade-offs between the efficiency and equity goals".

Two thoughts.

One, I suspect the wage premium is only part of the EU overpayment picture, and if the full compensation package of relatively cushy job security, relatively generous pension arrangements, and contractual pay increases based on tenure* rather than performance were included, the comparison would tip even more in favour of the public sector.

And two, of course, you wonder, could it happen here? My first guess is, possibly not. If we're "most like" the UK in our arrangements, then maybe not - the UK shows as paying people marginally less (-1.3%) in the public sector (though that excludes the notoriously good pension deal many UK public sector staff enjoy). And anytime I've been involved in employment decisions in the New Zealand public sector, there have typically been attempts made to do a genuine like-for-like comparability exercise with what the job would pay in the private sector.

Those appointments, though, tended to be at the more senior levels, and on the EU showing, that's not typically where the gravy train is. It's lower down.

So it's still an open question. Anyone know of any evidence?

*As an aside, my father, a lifelong Irish public servant, once tried to prevent one of those payments (an "increment", in Irish civil service jargon) to one of his non-performing staff. It nearly caused a constitutional crisis.

The curious case of the concierge and microeconomic reform

Many years ago, I fetched up in Paris on a quiet summer Sunday afternoon, and went to look up a friend who was living there at the time.

When I reached her address, I found it was one of those old Parisian houses converted into apartments, with a large central door which (I guessed from the outside) would lead, on the typical Paris pattern, through an archway into an interior courtyard and to staircases up to the apartments.
The door was closed. Nobody came or went. I couldn't get in. And this is long before you'd get your mobile out and ring up to be let in.

In those days - and for all I know, still - Parisian apartment blocks tended to come with a live-in manager cum overseer cum general busybody, the concierge. I took a punt that the shuttered windows on the ground floor might be the windows of the concierge's apartment, and knocked on them.
Nothing happened. I knocked again.

The shutters banged open and the concierge appeared: indeed, the concierge of all concierges, a wizened old hag with a voice that could file horseshoes at a hundred metres.

I did my polite best to explain that I was a friend of Mademoiselle R, but she interrupted me.

"Do you work on Sundays?"

"No, Madame..."

"Neither do I!", and she slammed the shutter in my face.

In her grizzled Parisian way, she was doing no more than stating the law of the land: Sunday trading was (in theory) not allowed, until liberalised to a degree in 2009. The sorts of places you might imagine should be open on Sundays (cafés, restaurants, petrol stations, museums, markets, and places like florists and fish shops with perishable produce) were allowed to be open on Sundays as of right (there's a bit of extra legal hoo-hah, but that's the gist), and other places could apply for permission.

Fast forward to today, and France is embroiled in a series of industrial disputes over both Sunday trading and late night opening.

Sephora, a fancy jewellery store, used to keep its flagship Champs Elysées outlet open till midnight: it's been forced to close at 9.00pm instead (never mind that it did a good slab of its trade after 9.00pm). Two DIY/hardware places, the likes of our Bunnings or Mitre 10, have been told to stop trading on Sundays at their outlets around the Paris region, much as our own Ministry of Labour dogsbodies harass garden centres that open on Easter Sunday (to their credit, they've told the local tribunal of jobsworths to stick their ban).

Maddeningly, the latest dispute is about exactly the sort of place you'd imagine should be open 24/7. Monoprix runs a chain of those centre-city mini-supermarkets you pop into when you need to pick up dishwasher powder or a pint of milk on the way home. Now, it's been told that the stores that used to open till 10.00pm (and a few that used to open till midnight) will have to close at 9.00pm.

Even more maddening again, the court only got involved in the first place because of a demarcation dispute. Younger folk will likely not know what a demarcation dispute is: it's when there's industrial action because of a fight between unions as to who's got the right to something. We used to have a lot of them, as did Australia, as we'd both imported the virus from the UK. In Monoprix's case,
management had actually cut an entirely voluntary deal with some of the unions representing its workforce, which had included sizeable pay increases (the company says 25% to 35%), time off in lieu, and other bits and bobs. But the biggest union, the CGT, wouldn't go along. And under French law, it can stymie the arrangements Monoprix made with the other unions.

There's good news here, and there's bad news.

First, the bad news. If there's a single thing that many of the Eurozone economies could do to revitalise their moribund economies, it would be to deregulate their service industries, and on this evidence they're still not doing it. They're riddled with inefficient, inequitable service industries that are a drag on the economy in multiple ways (I'll do a post shortly on 'employment protection' arrangements). Every man and his dog, from the IMF and the OECD and the European Commission to their own 'wise man' panels have told them the same thing, and they're still resisting despite the damage the existing arrangements are doing to consumer welfare, employment, cost competitiveness, innovation, flexibility, and economic growth.

But second, on the more positive side, there is, perhaps, a smidgeon of evidence emerging that the great European public is getting mightily sick of all of this.

In the sidebar on the left there's one of those online opinion polls that newspapers run (in this case from L'Express). It asks for readers' views on Sunday opening.

Only 9% took the unions' line ("une atteinte" etc, "an attack on workers' rights"). 9% were opposed on the reasonable enough view that "Sundays should be special". And 12% couldn't give a damn either way (that's the "cadet de mes soucis" answer).

But 9% said it was handy for shopping (the "bien pratique" answer, which includes one vote from me). And fully 67% of the responses were in favour of Sunday trading as "makes good sense in a period of high unemployment" (I didn't pick that one, because my view is that it makes good sense at any time).

Maybe we're seeing the beginning of a pushback from consumers finally pushed too far by one idiocy too many. Maybe. We'll see how it plays out.

NZAE conference update - some slides from Maurice Obstfeld's speech

I posted earlier a summary of Prof Obstfeld's impressive keynote speech at the NZAE conference on  "Finance at Center Stage: lessons from the Euro Crisis". At the time I mentioned I'd write some of his slides when they became available on the NZAE conference website, so here they are.

The first one that especially piqued my interest was this one about house prices in the Eurozone (with the US included for reference). Bubbles had developed pre-GFC in a wide range of housing markets, and are mostly deflating since, notably in Ireland (green), the US (dashed red), Greece (solid red), and Spain (light purple). On the downside, the unwind poses major problems for banks (who lent on the boom-time valuations of property) and households (negative equity and serviceability issues), but, on the upside, at least the process of setting saner prices and cleaning up the mess is underway.

It's more troubling, however, that some markets rose strongly but haven't dropped from their pre-GFC levels, notably France (bright blue), Finland (brown), and Italy (purple). It may be that the underlying supply/demand characteristics of the French housing markets genuinely explain the ongoing high prices: Paris for example is still a highly desirable city with limited supply. And there may be good reasons for the behaviour of the Finnish market (about which I know nothing). House prices holding up in Italy, however, look harder to explain.

Overall, you're left with the queasy feeling that there is still quite a bit of house price adjustment yet to happen in parts of the Eurozone, and on the policy front some urgency to have Eurozone-wide bank assistance programmes in place before it happens.

The second slide that caught my eye was this one, which shows real interest rates in the PIIGS (Prof Obstfeld prefers to call them by the less offensive GIIPS) compared to Germany. And the lesson here is that one monetary policy did not fit all. In Ireland, in particular, the economy pre-GFC was very strong, prices and wages were rising, and real interest rates were piffling or negative. No wonder the house market ignited.

This is all, of course, with 20:20 hindsight, but even at the time it would have been a good idea to have had some levers to pull to offset an ECB setting of monetary policy that was wildly too loose for parts of the Eurozone (or possibly this is a roundabout way of saying the Eurozone economies never met the criteria for a monetary union in the first place). Either way, the lesson here is something to remember if the idea of a common currency with Australia ever resurfaces.

And the third and final one I'd like to show you is this, which charts the competitiveness of the peripheral GIIPS back to the start of the Euro: a rising graph means worsening competitiveness. If you want to look at the data for yourself, these are the Harmonised Competitiveness Indices that the ECB prepares, they come in three flavours (based on consumer prices, GDP deflators, or unit labour costs), and you can access them here. 

Very notably, competitiveness in Ireland (green) and Spain (red) deteriorated badly in the early 2000s - but only Ireland has been able to do anything effective about it, and without getting into the whole austerity debate, you can see why it has been the poster-child for getting its act together. You can also see where Greece's reputation for failing to deliver on reforms has come from, and what effect its inactivity has been having on its eventual ability to trade its way out of its problems. And while Italy's and Portugal's competitiveness never blew out the way it did in Greece, Ireland and Spain, they haven't been doing much to improve theirs, either. 

Finally you can see how well Germany has been doing, at least in part because it was fortunate to do some labour market reform before the GFC struck. As a result its latest (May) unemployment rate is 5.3%, under half the rate of largely unreconstructed France (10.9%). Prof Obstfeld's graph didn't include France, so I've dug out the data: on the same basis (Q1 1999 = 100 to Q1 2013), French competitiveness on a unit labour cost basis deteriorated by 1.7%, whereas Germany's improved by 18.5%.

Eurosclerotic price setting

My previous post on Miles Parker's excellent research into how New Zealand firms set their prices mentioned, in passing, how little attention Eurozone firms appeared to pay to competitive conditions in their markets when they set their prices.

I didn't expect to come across such a wonderful example in such short order, but when I signed out from blogging about Miles' research and went trolling through some of the French websites I follow, I found this gem.

It's about how the French post office apparently wants to raise its prices - by 1% more than inflation in 2014 and 2015, and by (wait for it) 3% more than inflation in each of 2106, 2017, and 2018. The article says that, if inflation is 2% a year, this translates into a cumulative price increase of 24%. I make it 22.8%, but same diff.

It's a lovely insight into where many Eurozone businesses' minds are. My business in in free fall (the number of letters carried is expected to fall by 6% a year, similar to what's happening to mail carriers everywhere). So I'm entitled to big price increases to keep my revenue where it used to be.

Yeah, right.

France and the ratings agencies

Three articles in the online May 27 issue of La Tribune won't bring much joy to people worried about the Eurozone's economic outlook and its ongoing potential for disruption of global financial markets.

The High Council for the Public Finances - maybe there's a more elegant translation of the Haut Conseil des Finances Publiques, but you get the drift - has trolled through the revised 2012 national accounts published by INSEE, the French statistical agency, and has established that the nominal fiscal deficit was 4.8% of GDP (worse than the previously thought 4.5%), and that the underlying structural deficit was 3.8% (up from the previously estimated 3.5%). The good news was that the 2012 figures were better than 2011's: the bad news (and this is my view, not the Council's) is that the improvement took place under previous management (Sarkozy's).

And we heard from both major ratings agencies.

S&P is expecting a poor economic outlook (-0.2% fall in GDP this year, +0.6% growth in 2014), fiscal deficits of 3.8% of GDP this year and 3.3% in '14, and says it remains to be seen if debt will stabilise in 2105 (the government's projections are debt/GDP of 93.6% in '13, 94.3% in '14, and 93% in '15). It also says would threaten France's credit rating, and its own assessment will depend on how France deals with its main reform challenges, and it mentions rigidities in the labour market and the services sectors.

Moody's has the same hymn sheet: GDP down this year (-0.4%), weak recovery in '14 (+0.5%), and a question mark over structural reform. It gives credit for some recent labour market reforms, but notes that we haven't yet seen what their impact has been, and it says its negative outlook on France's credit rating reflects its "worry on the loss of competitiveness of the country, on its fragmented labour market, and its budgetary situation".

Eurozone risks - France (2)

I referred in an earlier post to the inability and unwillingness of the current French government to confront the main issues France faces. And there's been a lot of comment, especially after last weekend's anti-Hollande protest demonstrations made them topical, about his government's lack of grip and the President's own consequent poor standing in the polls.

It's certainly true that many current French economic policies are either wrong-headed or inadequate. Examples are Hollande's campaign pledges to hire 60,000 more teachers when the fiscal deficit is already too high, and to wind back the one headline reform his predecessor, Nicolas Sarkozy, had managed to implement  (raising the age of eligibility for superannuation to 62).

What's striking in particular is how out of date some of them are. 75% top income tax rates, one of President Hollande's cunning plans, take us all the way back to the counterproductive policies of 50 years ago. Remember when the Beatles wrote 'Mister Taxman'? - "Let me tell you how it will be, There's one for you, nineteen for me...Should five percent appear too small, Be thankful I don't take it all". Is 75% way above any kind of optimal tax rate? Is it likely to produce a flight of the most talented, internationally mobile, and most productive? Is the flight already happening? Will the policy result in a lower rather than a higher tax take? Could all of this have been predicted? Respectively, yes, yes, yes, probably, and yes.

Perhaps it's because France's Socialists rarely command all the levers of power, and when they do eventually get hold of them (as they do today at all national and virtually all regional levels), they take over with the policies in vogue when they last held sway. Whatever the reason, their policies often tend to be decades behind the times. I'm reminded that, just as the Western world was about to embark on a massive privatisation programme, the French government under President Mitterrand moved to nationalise the French banks in 1981 (prompting, by the way, banker Baron Guy de Rothschild's mordant comment, ""A Jew under Pétain, a pariah under Mitterrand. For me, it's enough. To rebuild on ruins twice in a lifetime is too much").

All that said, I wouldn't be entirely sure that Hollande is as inept as the commentariat and the latest polls would make out. Hollande is intellectually smart (an énarque, a graduate of the prestigious Ecole Nationale d'Administration), politically astute (he manoeuvred through the fratricidal currents of the Socialist Party for decades), and electorally lucky: first, the front runner for the Socialist presidential nomination, Dominique Strauss-Kahn, imploded spectacularly, and second, Hollande benefitted from the "anyone but Sarkozy" vote. He didn't have much to spare - he got 51.7% of the final run-off vote - but he knocked off a sitting President, no mean feat.

There are also some recent signs of more rational economic policy - a warmer approach to business, revisions to an ill-judged capital gains tax proposal, some changes to labour laws - and, for me, one good sign in the appointment of Jean Pisani-Ferry, previously the director of the highly regarded Bruegel think-tank, as director of the French Prime Minister's Economic Policy Planning staff. You can get a flavour of what Pisani-Ferry is likely to be advising, as well as a very good analysis of the Eurozone's issues, here.

The policy outlook, in sum, is very much in the balance right now. The Eurozone's second largest economy could be starting to move to more conventional, effective management, or it might drift on in the muddle-headed way of the past year. I'll update with any developments that indicate which path looks the more likely.

Eurozone risks - France (1)

There's been a real mix of developments in the Eurozone recently. On the positive side, Italy's finally got a government with some credibility, and Ireland is arguably in the early stages of coming out the other side of a severe austerity programme. On the negative side, the banking crisis in Cyprus materialised largely out of the blue, the rescue plans were very badly mishandled, and there are other banking problems on the horizon (Slovenia, for example). And in the middle we have the ongoing uncertainties about Greece, Portugal, and perhaps Spain. The Eurozone remains capable of generating substantial shocks  to global financial markets.

Lurking in the background is perhaps the greatest threat to Eurozone stability and recovery - the structural and cyclical weaknesses of the French economy, and the inability and unwillingness of the current French administration to come to grips with them.

Watch the French 8.00pm news any day of the week - I like TV2's coverage, which is streamed over the Internet, http://www.france2.fr/ - and see the amount, and angle, of coverage given to any proposed redundancies. Job losses are distressing, we all know that, but we also know that employment growth happens because new job creation exceeds old job destruction. The French don't accept that: it's not much of an exaggeration to say that the French world view is that every job has a right to exist in perpetuity, and every incumbent in that job is entitled to stay there.Here's just one illustration of the issues.

Structural fiscal deficit, % of GDP. Source: IMF WEO database

The IMF calculates a measure of the true underlying fiscal position, which it calls the 'structural' balance, and is the cyclically-adjusted fiscal balance, further adjusted for any one-offs. France has been systematically worse than Germany as far back as these series go for the two countries (1991). Even if you accept the IMF's projections that both countries will get their houses in order over the next five years - yeah, right - France is starting from a worse position, and will take longer to get back to balance.

One final illustration: youth unemployment. France's rate of youth unemployment (26.5%, on Eurostat's data), is actually worse than the dire Eurozone average (24%). France doesn't break out racial or ethnic unemployment rates - "we are all equally French in the colour-blind eyes of the French State" is the official line, which is partly admirable and partly deeply convenient - but you can guess that, for the Arab and North African kids in the slum-like banlieues, it must be approaching 100%.

Financial markets at the moment have their concerns about France, though real alarm bells are still a long way off:  the 10 year French government bond trades at only a modest 50 basis points higher yield than its German equivalent. Even so, there are already people who are of the view that, if there is a big road wreck coming in the Eurozone, it could well happen on the autoroute.

The latest move from the ECB

The European Central Bank's 0.25% cut in its main lending rate, to 0.5%, and its restated commitment to open-tap funding of the Eurozone's banks, come as no surprise after the latest statistics from Eurostat. The Eurozone's unemployment rate rose a bit further in March, to 12.1%, while inflation had eased in April, to 1.2%. This left the door widen open for a cut, though apparently (if the report in the May 2 edition of the FT is correct) at least one member wasn't in favour of a cut.

What's more surprising, to me, is how long it's taken for inflation to reflect the depressed state of activity in the Eurozone. As recently as January, inflation was still tracking along at 2% - high for a region running hugely below capacity. It's a reminder of that old 'Eurosclerosis' - the lack of flexibility in the Eurozone's product and labour markets.