As France’s socialist government raised taxes on the wealthy and threatened to nationalize a steel plant last year, neighboring Spain reveled in the news that exports were rising and several auto plants would be expanded by their owners.
It was a small sign of what could become a defining trend in the euro zone. The most troubled nations, including Spain, have slashed wage costs and overhauled labor and social rules in an effort to become more competitive.
Now there is mounting pressure on France to do the same — or risk falling behind in Europe’s struggle for economic revival. The government of new President Francois Hollande has veered between promises of reform and sometimes fiery attacks on corporate interests and the rich, a fact that has worried public officials in Washington and elsewhere about the direction of the euro zone’s second-largest economy.
“France is losing ground in a relative sense to these other countries,” said Edward Gardner, assistant head of the IMF’s Europe department. “The outlook remains very weak, not only because of external conditions [in the global economy], but also an internal lack of dynamism.”