By Marie Aouriri and Héloïse Tournoux
The public spending debate merits precise comparisons. The public sector payroll has been higher in France than in Germany by five percentage points of GDP for over 20 years. However it is overestimated by almost two percentage points as a result of hospital work that is not accounted for in Germany as public sector employment. With regard to education, more than one percentage point can be explained by demographics and organisational differences. Nevertheless, for the other government functions, there is still a significant difference, with France spending two percentage points of GDP more than Germany.
In France, at the beginning of 2015, interest rates on new bank loans to businesses fell sharply; this lasting decline, which was more pronounced for high-rate loans, followed the ECB's announcement of quantitative easing. Without any significant change in the characteristics of borrowing companies, it attests to an improvement in financing conditions.
By Clément Mazet-Sonilhac and Jean-Stéphane Mésonnier
In France, the cost of equity (CoE) faced by non-financial corporations increased sharply during the 2007-2009 and 2011-2012 crises, driven by a surge in the equity risk premium. The COE indeed measures the return required by an investor to acquire or retain a share given its risk. It has often exceeded the return on equity (RoE) since 2007. Since 2016, the CoE has been lower than the RoE for the large listed French non-financial corporations; this encourages productive investment.
Uncertainty about the future path of interest rates is harmful to the economy. A new measure of interest rate uncertainty is constructed for G7 countries, Spain and Sweden, during 1993-2015. Interest rate uncertainty, of the size observed during the recent crisis, decreases industrial production by up to 3.8% and CPI inflation by up to 1 percentage point (pp) while increasing unemployment by up to 1.2 pp.
Morgan Després, Édouard Vidon
Deeper financial integration through capital markets can support European growth and resilience to shocks by spurring cross-border equity investment. Completing the banking union requires parallel progress in credit risk reduction and risk-sharing, while keeping systemic risks in check. These priorities should be seen as part of the same agenda and are all the more critical in a post-Brexit EU.