France vs. Spain France Makes

France vs. Spain

France makes for the better investment option, when compared with Spain. There are several reasons for this. The first is that the French economy is larger and more diverse than the Spanish economy. The second is that the French economy is trending upward, given the government's attitude towards private enterprise as a cornerstone of the economy. The third reason is that France is in a better financial position.

The French economy is the 9th largest in the world at $2.11 trillion, based on purchasing power parity. The drawback to this size is that the French economy is mature. Growth in 2009 was -2.2%, a function of the global economic downturn. But even during stronger years, the growth rate for the French economy was relatively low, at 0.3% in 2008 and 2.3% in 2007. This leaves France with a fairly average GDP per capita of $32,800, only good for 40th in the world. The French economy has a strong service base, typical of the modern industrial nation. Service industries employ 71.8% of French workers, compared with 24.3% in industry and 3.8% in agriculture. The economic diversity is evidenced by the variety of major industries -- machinery, chemicals, automobiles, aircraft, electronics, textiles and food processing (CIA World Factbook, 2010).

The French government under Nicolas Sarkozy has taken a more free market approach to economic management than previous regimes (Ibid). Typically, the French economy has been heavily reliant on state intervention, with a wide number of firms falling under public ownership and many more under tight regulation. Unions have strong power in France, and their influence has also resulted in a high cost of doing business in France and stifled economic growth. The result of the old French economic structure has been characterized as "a bloated public sector, high state spending, high corporate and payroll taxes and a rigid labour market," each of which creates a drag on the French economy (Howarth, 2008). Sarkozy in 2007 began a path of opening the economy and working to marginalize the unions in order to make France more competitive (The Economist, 2007). There is evidence, though, that old habits die hard and the central government is again increasing its role as economic recovery begins to take hold (The Economist, 2009).

France is also in better financial shape than is Spain. The country is the world's 6th largest exporter and does much of its business around the European Union, free from significant trade barriers. The country has a trade deficit, however, of $75.4 billion. The French public debt is 79.7% of GDP, 15th highest in the world but not an unmanageable figure given the country's economic strength and solid export base. Inflation is very low, at 0.1%.

In addition, France performs well on other variables. The country has a highly education workforce, which is attractive, and its geography in Europe means that it has easy access to many other major markets such as the UK, Germany, Italy and Spain.

In all, France would be the preferred country to enter. Despite the structural issues in the French economy and what may ultimately be a lack of fortitude on the part of Sarkozy to stick with the path of restructuring the French economy, France remains one of the most vibrant economies in the world. The French have a strong manufacturing base and remain a world leader in a number of different fields. France has a high rate of income which allows for ample consumption. The Euro lends currency stability to France, and the government's debt load is manageable despite high levels of state spending.

Spain is a less favorable nation in which to invest than France. The country performs more poorly on most measures, and is now subject to considerable speculation with regards to its debt; if Greece loses its place in the Eurozone, then Spain could be next given its economic situation.

Spain has the world's 13th largest economy, worth $1.368 trillion annually. The economy had been enjoying a lengthy run of success prior to 2008 but has since turned to recession. The Spanish economy contracted 3.6% in 2009, in contrast to gains of 0.9% in 2008 and 3.6% in 2007. Unemployment is Spain has risen rapidly, and now since at a whopping 19%. The per capita GDP is $33,700, ranked 38th in the world and higher than that of France. Spain has a similar economic makeup to France, if slightly more oriented towards agriculture. Services accounted for 71.7% of jobs; industry 24% and agriculture 4.2%. Manufacturing output is less sophisticated than that of France and is oriented towards textiles, food and beverages, metals, chemicals and shipbuilding (CIA World Factbook, 2010).

In recent years, the Spanish economy has grown largely due to a robust real estate sector, characterized by foreign and domestic speculators driving prices up (Krugman, 2010). As result of the real estate bubble bursting, the Spanish economy has suffered greatly. The Spanish economy is in a state of turmoil at present because this slump has left it with high prices, making Spain uncompetitive. With devaluation out of the question as a Euro country, the Spanish economy seems destined to suffer for the foreseeable future (Ibid.)

Compounding the issue of Spain's economic woes is that the country may be subject to a domino style crisis, which will be lead by the collapse of the Greek economy. Spain is, along with Portugal, the next Eurozone country that may fail if Greece collapses. This turmoil could potentially see Spain removed from the Eurozone, or worse yet bring down the Euro. The Spanish government disputes Krugman's view, although that view was mirrored by EU economics commissioner Joaquin Almunia so the credibility of the Spanish finance minister must be called into question as a mere attempt to defend against a rapid increase in the cost of Spanish debt (Evans-Pritchard, 2010). That said, public debt as a percentage of GDP is only 55% in Spain, much lower than that of France. The deficit, however, is one of the highest in the EU at 11.4%, the result of massive spending programs in the wake of the construction industry's collapse.

The Spanish government believes that the turmoil is overblown, given the country's robust economy in years past. However, the deficit spending looks to be sustained for the foreseeable future, as there is little hope of Spain regaining its economic growth since the housing market is oversupplied and there is little in the way of value-added manufacturing relative to other European countries. Spain is also racked with infrastructure issues such as strong unions and rigid job protection that will make reform efforts difficult, leaving the government without the income needed to reduce the deficit (Abend, 2010).

All told, Spain has some advantages over France in terms of a few key indicators. However, the Spanish economy is struggling to cope with the downfall resulting from its housing bubble. High unemployment will compromise consumer spending and does not look to be resolved any time soon. As a result, the Spanish economy is facing much greater challenges today than is the French economy. The road to recovery will be longer and harder, which means that it is not recommended that we invest in the Spanish economy at present.

France has superior industrial capacity to Spain. Spain's economic success was based largely on an overinflated real estate market. This fueled a robust construction industry, largely based on the development of vacation properties for northern Europeans. This market was highly speculative in nature. When it burst, it created the current economic mess. It also means that the majority of the unused capacity in Spain is in construction, rather than in manufacturing or white collar services.