TRUE OR FAKE. Did the euro contribute to the decline in purchasing power and the deindustrialization of France, as Marine Le Pen claims?

Exit out of the euro. Unlike his previous presidential campaign in 2017, Marine Le Pen is no longer in favor of abandoning the single European currency. On the program “Political Questions” on France Inter and Franceinfo on Sunday, February 20, the National Rally candidate explained that she had heard “message” French, favorable “stay in euro”, twenty years after it appeared in our wallets.

“It is still a currency that has flaws”but added Marine Le Pen. And a candidate to claim that “everyone knows the contribution of the euro to exacerbate the fall in purchasing power” as well as “towards the deindustrialization of our country.” But is she telling the truth or lies?

On the question of purchasing power INSEE study on the evolution of consumer prices because the introduction of the euro proves that Marine Le Pen was wrong. Between 2002 and 2016, inflation averaged 1.4% per year. This is lower than in the previous fifteen years (+2.1% on average from 1986 to 2001).

“We cannot say that inflation has reduced the purchasing power of French households since the introduction of the euro.”

Stephanie Villers, eurozone economist

on Franceinfo

The average growth in gross disposable income per capita, which serves as the basis for calculating purchasing power, is not “don’t stick” or with the theory of the RN candidate, argues Sandrine Levasseur, an economist at the French Observatory of Economic Conditions (OFCE). She notes that between 2005 and 2020, this figure increased by an average of 0.8% per year in France, which is the same as in the UK, which has always abandoned the single currency.

However, the conversion of franc prices into euros has led to higher prices, INSEE admits in a study published in 2017. This is the effect of rounding up to the next euro. For example, a product originally sold for 50 francs could be labeled as 8 euros instead of 7.62 euros, a price that would match the conversion rate. However, this upward adjustment had only one meaning. “moderate impact” overall prices, “on the order of 0.1% to 0.2%”according to the Institute of Statistics.

However, in the minds of many French people, the transition to the euro is still associated with a deterioration in purchasing power. Currency change has “the discrepancy between the measurement of inflation and its perception by households has increased significantly”, also notes INSEE. The graph below from the Statistical Institute thus illustrates the gap between inflation as perceived by the French (red) and real price developments (blue), which has clearly been widening since 2001.

Comparison of inflation perceived by households and real inflation for the period 1991–2017.  (INSI)

Several hypotheses may explain this discrepancy. Consumers, on the one hand, are more sensitive to rising prices than to their fall or stability. “because they are the first to pose a threat to their budget balance”, analyzes INSEE. On the other hand, they are better at observing price fluctuations for frequently purchased items.

“The French household sees first and foremost what it pays for on a daily basis, like food or gas station.”

Stephanie Villers, eurozone economist

on Franceinfo

However, it was for everyday products such as baguettes that the rounding effect of the changeover to the euro was most noticeable. Conversely, he was “slightly bearish” for large household appliances, according to INSEE.

Finally, the change in consumer prices is an average set in relation to the standard consumer basket. But in fact, consumer habits vary considerably from one household to another, from a rural worker to an urban one. But, “the evolution of prices, calculated taking into account different consumer baskets, differs little from the average inflation over the past 15 years”tempers INSEE.

“This does not mean that there is currently no purchasing power problem”warns Stephanie Willers. Influenced by the lifting of health restrictions and the rapid economic recovery, in particularIinflation has shot up in recent months. According to the latest INSEE results, in France in January it reached 2.9% y/y. A level not seen since the 1980s has even risen to 5.1% in the Eurozone over the same period, according to Eurostat.

Energy prices have skyrocketed and supermarket checkout bills have increased. “The most insecure households are seeing an alarming rise in their limited spending,” acknowledges Stephanie Villers. “Mbut it has nothing to do with the euro”, the economist decides. On the contrary, the eurostable and relatively strong currency”which allows it to act as a “firewall against rising commodity prices” and from “slightly limit breakage”says the specialist.

If, therefore, it is not possible to attribute a decline in purchasing power to the euro, can we, on the other hand, say that it contributed to the decline of industry in France, like Marine Le Pen? Experts interviewed by Franceinfo do not share this opinion. “Deindustrialization is older than the adoption of the euro, which dates back to the mid-1970s.”, Sandrine Levasseur recalls first of all. A phenomenon that affects not only France. “Generally speaking, Europe is deindustrializing”both in countries using the euro and in others, according to a report by the Observatory of the Territories published in 2018.

France, however, is a deindustrialized country. “the heaviest in decades”, noted for his part the strategy of France in a note for 2020. Since 1991, the share of industry in French gross domestic product has fallen by 7.5 points and amounted to 13.4% in 2018 against 25.5% in Germany (a decrease of 5 ,4 points). . Britain followed the same trajectory as France. The chart below, taken from the France Strategy report, shows once again that the decline in the industry does not depend on whether it belongs to the eurozone.

Dynamics of the share of industrial value added in gross domestic product from 1991 to 2008 (FRANCE STRATEGIE)

However, with the adoption of the euro, France had to abandon its economic weapon: competitive devaluation. This mechanism consists in lowering the exchange rate of the national currency in order to become more competitive than competing countries and thus stimulate its exports. HistoricallyFrench industry needed these devaluations to keep its products attractive, according to a National Assembly commission of inquiry into deindustrialization published in January. But thBy joining the euro, France has delegated its monetary policy to the European Central Bank and therefore no longer has that option. But, “Competitive devaluation only worked in the short term. And, as a rule, Italy, in turn, devalued in the following months, ” rewinds Sandrine Levasseur. Therefore, the loss of these weapons alone cannot explain the deindustrialization of France.

In fact, the transition to the euro primarily exposed the weaknesses of French industry. Stephanie Willer also insists on the role of another single-currency event: China’s accession to “became the factory of the world” at the World Trade Organization in December 2001. In the context of the rise of developing countries, the report of the National Assembly points to one of the main reasons for deindustrialization “preference for large French groups” to move, not to search “step up”. “Choice of short-term returns prevailed over investments”continues the text.

“France remains in the middle. Therefore, it faces strong competition from developing countries with lower wage costs.”

Sandrine Levasseur, OFCE Economist

on Franceinfo

To stand out, Germany relied more on more innovative technologies and high quality products”, widening the gap with France, concludes Stephanie Viller. Thus, the deindustrialization in France is associated with deeper factors than the adoption of the euro. “It was not the currency that made us be left without industry”concludes the economist.