Exit the exit from the euro. Unlike her previous presidential campaign in 2017, Marine Le Pen is no longer campaigning for the abandonment of the single European currency. In the program “Political Questions” on France Inter and franceinfo, Sunday February 20, the candidate of the National Rally explained that she had heard “the message” of the French, favorable to “stay in the euro”, twenty years after its appearance in our purses.
“It’s still a currency that has drawbacks”however added Marine Le Pen. And the candidate to argue that “everyone knows the contribution that the euro has had to the aggravation of the decline in purchasing power” and “to the deindustrialization of our country.” But is she saying true or false?
On the question of purchasing power, an INSEE study on the evolution of consumer prices since the introduction of the euro proves Marine Le Pen wrong. Between 2002 and 2016, inflation averaged 1.4% per year. A figure lower than that of the previous fifteen years (+2.1% on average between 1986 and 2001).
“We cannot say that inflation has come to cut into the purchasing power of French households since the creation of the euro.”
Stéphanie Villers, economist specializing in the euro zoneat franceinfo
The average growth in gross disposable income per capita, which serves as the basis for calculating purchasing power, does not “don’t stick” either with the theory of the RN candidate, argues Sandrine Levasseur, economist at the French Observatory of Economic Conditions (OFCE). She notes that between 2005 and 2020, this indicator increased by 0.8% per year on average in France, which is as much as in the United Kingdom, which has always rejected the single currency.
The conversion into euros of prices in francs has however led, at the margin, to a rise in prices, concedes INSEE in a study published in 2017. This is the effect of rounding up to the next euro. For example, a product initially sold for 50 francs could be labeled at 8 euros, instead of 7.62 euros, the price which would have corresponded to the conversion rate. This upward adjustment, however, only had one “moderate impact” on prices as a whole, “of the order of 0.1% to 0.2%”according to the Institute of Statistics.
Still, in the minds of many French people, the changeover to the euro is still associated with a deterioration in purchasing power. The currency change has “significantly increased the divergence between the measurement of inflation and the perception that households have of it”, also notes INSEE. The graph of the statistical institute below thus illustrates the gap between inflation perceived by the French (in red) and the real evolution of prices (in blue), which is clearly widening from 2001.
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Several hypotheses can explain this discrepancy. Consumers are, on the one hand, more sensitive to rising prices than to falling or stable ones, “because they are the first who can pose a threat to the balance of their budget”, analyzes INSEE. On the other hand, they better observe price variations for frequently purchased products.
“The French household sees above all what it pays for on a daily basis, such as food products or refueling.”
Stéphanie Villers, economist specializing in the euro zoneat franceinfo
However, it is precisely on these everyday products, such as baguettes, that the rounding effect during the changeover to the euro was the most marked. Conversely, he was “slightly bearish” for large household appliances, according to INSEE.
Finally, the change in consumer prices is an average, established in relation to a standard basket of goods. But in reality, consumption habits vary significantly from one household to another, from a worker residing in the countryside to an urban setting. However, “the evolution of prices calculated with different consumption baskets differs little from the average inflation over the past 15 years”tempers INSEE.
“That does not mean that there is not currently a problem of purchasing power”, warns Stephanie Villers. Under the effect of the lifting of health restrictions and the rapid recovery of the economy, in particularIinflation has jumped in recent months. In France, it reached 2.9% over one year in January, according to the latest results from INSEE. A level not seen since the 1980s. Over the same period, it even rose to 5.1% across the euro zone, according to Eurostat.
Energy prices have soared and the bill has increased at the supermarket checkout. “The most precarious households have seen their constrained spending increase worryingly”, recognizes Stephanie Villers. “Mbut it is in no way linked to the euro”, decides the economist. On the contrary, the euro is “a stable and relatively strong currency”which allows to some extent to act as “firewall against rising commodity prices” and of “limit the breakage a bit”says the specialist.
If it is therefore impossible to attribute to the euro a deterioration in purchasing power, can we on the other hand say that it has contributed to the decline of industry in France, as also advanced by Marine Le Pen? The experts interviewed by franceinfo are not of this opinion. “Deindustrialisation is a phenomenon older than the changeover to the euro, which dates from the mid-1970s”, recalls in the first place Sandrine Levasseur. A phenomenon that does not affect France exclusively. “Generally speaking, Europe is deindustrializing”both in countries using the euro and in others, notes a report by the Observatory of Territories published in 2018.
France, however, is the country that has undergone deindustrialization “the hardest in the last decades”, noted for its part France strategy in a 2020 note. Since 1991, the share of industry in the French gross domestic product has fallen by 7.5 points, and it stood at 13.4% in 2018, against 25.5% in Germany (down 5.4 points). The UK followed a similar trajectory as France. The chart below, taken from the France Strategy report, shows once again that the decline in industry does not depend on whether or not it belongs to the euro zone.
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However, with the changeover to the euro, France had to give up an economic weapon: competitive devaluation. This mechanism consists of lowering the exchange rate of the national currency to become more competitive than competing economies, and thus promote its exports. Historically, French industry needed these devaluations to keep its products attractive, points out the report of the National Assembly’s commission of inquiry on deindustrialization, published in January. But thn joining the euro, France has delegated its monetary policy to the European Central Bank, and therefore no longer has this possibility. However, “competitive devaluation only worked in the short term. And as a rule, Italy in turn devalued in the following months”, rewinds Sandrine Levasseur. The loss of this weapon cannot therefore in itself explain the deindustrialization of France.
In reality, the changeover to the euro has above all highlighted the weaknesses of French industry. Stéphanie Villers also insists on the role of another event, concomitant with the adoption of the single currency: the entry of China, “became the factory of the world”, in the World Trade Organization, in December 2001. In a context of the rise of emerging countries, the report of the National Assembly points to one of the primary causes of deindustrialization “the preference of large French groups” for relocations, rather than seeking “a step up”. “The choice of short-term profitability took precedence over the investment”continues the text.
“France has remained positioned on the mid-range. It therefore faces strong competition from emerging countries with lower wage costs.”
Sandrine Levasseur, economist at the OFCEat franceinfo
To differentiate itself, Germany has relied more on “more innovative technology and high-end quality products”, widening the gap with France, completes Stéphanie Villers. French deindustrialization is therefore linked to deeper factors than the changeover to the euro. “It’s not the currency that made us end up without industries”concludes the economist.