Is France the next sick man of Europe?

BRUSSELS, Belgium — Ever since last month's disclosure that ex-budget minister Jerome Cahuzac lied about stashing almost $800,000 in a secret Swiss bank account, the French have become obsessed by their politicians' money.

So as they sat down to their croissants and cafe au lait on Tuesday morning, many were gratified to be able to delve into the personal finances of their government’s ministers for the first time.

That’s because members of the Socialist government have been obliged to post their assets online, thanks to a political clean-up campaign by President Francois Hollande.

Among the revelations, voters discovered Foreign Minister Laurent Fabius is the richest cabinet member with $7.2 million in assets, including a Paris apartment, a house in Normandy and $1.7 million in shares. Prime Minister Jean-Marc Ayrault is the proud owner of a 1988 Volkswagen microbus valued at $1,300. And Finance Minister Pierre Moscovici has saved a mere $350,000 during his long political career.

The Cahuzac scandal may have lifted the lid on the wealth of officials Hollande had promised on taking office would be clean and “exemplary.”

However, France's neighbors are far more worried about the country’s finances.

"France's public sector indebtedness represents a vulnerability, not only for the country itself but also for the euro area as a whole," European Union headquarters warned last week.

As Hollande tries to extricate himself from political scandal, the economy is in deeper trouble than many had believed. And the unusually blunt language from Brussels underscores fears that unless he manages to get it back into shape, the euro zone's second-largest economic power could bring down the whole bloc.

"France is a core country in terms of its size and its geo-economic position," EU Economic Affairs Commissioner Olli Rehn told a news conference last week. "Its health has a very direct impact on the overall health of the euro zone."

Markets have generally been kind to France throughout the euro crisis, treating it alongside Germany as one of Europe's virtuous northern members.

Its "spread" — the difference between the interest Paris has to pay on key government bonds and the benchmark German rate — is just 0.5 percent.

In contrast, southern European countries have seen the markets push their borrowing costs far above the German level. Italy's spread is at 3 percent, Spain's at 3.5 percent, Portugal's at 5 percent and Greece's, 10.2.

France has never been close to levels likely to raise fears that it can no longer finance itself and might require a bailout. However, some of the country’s numbers have a distinctly southern feel.

The International Monetary Fund on Tuesday forecast France would slip into recession this year after zero growth in 2012. Unemployment is rising steadily and scheduled to top 11 percent next year.

Public finances are getting worse. The government missed deficit targets last year and is expected to fail again in 2013.

At 4.6 percent, its deficit last year was 40 times higher than Germany's, way above Italy's and close to that of bailed-out Portugal. National debt has soared since the early 2000s, rising from 56 percent of economic output in 2001 to the 93.4 percent forecast for this year.

Last week's EU report warned of declining competitiveness, labor market rigidity, falling exports and rising labor costs. French companies have the lowest profit margins in the euro zone.

"The resilience of the country to external shocks is diminishing and its medium-term growth prospects are increasingly hampered by long-standing imbalances," the European Commission warned.

Hollande has tried to address the problems since he came to power almost a year ago by launching reforms to cut labor costs, reducing bureaucratic hurdles for business and encouraging innovative investment. But he is caught between campaign promises and economic realities.

Before his election, the president pledged to fight against Europe's austerity orthodoxy. Plans included cutting the retirement age, slapping the rich with a 75 percent income tax, hiring tens of thousands of public school teachers and protecting the 35-hour working week limit along with other cherished social standards.

But none of that is doing much to attract foreign investment away from rivals in Asia and Central Europe, or reducing government spending — which is the highest in the euro zone at 56 percent of GDP.

German and EU officials are urging deeper reforms, but with his popularity ratings already at a record low of 26 percent due largely to rising unemployment, Hollande is reluctant to upset his Socialist base by pushing unpopular liberalization measures.

"Among the ruling party, there is no consensus on what should be done,” says Tomasz Michalski, associate economics professor at the leading French business school HEC Paris. “That's why it looks so inept.”

Michalski sees little sign Hollande's government is ready to tackle the "horrendous" level of public spending or scrap a "Byzantine" system of bureaucracy, subsidies and vested interests.

"This government is going to drift and do the absolute minimum necessary hoping there's going to be some external adjustment, some external demand that's going to lift growth in France," he said in an interview.

Although Hollande has stressed the need to get serious with reform, he’s been deeply skeptical about Europe’s ability to recover while it's being force-fed a diet of unadulterated austerity.

"We need to get growth going again in Europe, austerity can't be the only policy envisaged," the president told a news conference in Paris last week. "The policy I'm driving forward is one that permits us to avoid austerity, to revive growth, but it has to be serious."

Hollande’s aversion to austerity has helped push him apart from German Chancellor Angela Merkel, just as the gap has grown between the French and German economies.

That presents a double danger for Europe.

Political differences between the euro zone's two big powers will weaken the chances of finding consensus over long-term solutions to the euro zone crisis — through tighter banking and budget rules or greater economic burden sharing, for example.

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At the same time, a moribund French economy would be a dead weight too heavy for the euro zone to carry. The risk of long-term French stagnation while the German economy pulls ahead could place unbearable strains on a relationship that’s at the heart of European integration.

"The success of the euro zone depends on France performing well," Michalski says.

But with no end in sight to the cycle of French economic decline and political estrangement, the euro’s outlook looks set only to worsen.