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76 Economic crisis, health systems and health in Europe: country experience
commodity prices, which had an inflationary effect that diminished household
purchasing power.
A confluence of factors impacted on both household wealth and the
competitiveness of French firms. Consumption declined under the weight of
decreased disposable income combined with falling stock market indices and
home values. At the same time, the fall in unemployment between 2006 and
2008 resulted in slower productivity growth via faster employment growth for
individuals with lower education levels and consequently higher labour costs.
The cash flow problems and the credit crunch of September 2008 led to an
abrupt fall in activity, the collapse of confidence indices, temporary shutdowns
in certain industries, a halt in corporate investment and higher unemployment
(OECD, 2009).
1.2 Government responses to the crisis
At the macroeconomic level, France was less exposed to the effects of the
financial and real estate crises than other countries because of the relatively low
level of household debt. Nonetheless, the worldwide crisis threatened French
banking institutions, leading the government to undertake emergency measures
in October 2008: one measure allowed banks to refinance themselves with a
state guarantee 1 and another injected equity into the banks to improve their
solvency. 2 At the same time, the government instituted a lending programme
for businesses with up to 5000 employees as well as an investment fund
providing venture capital to deter foreign takeovers of firms in strategic sectors.
The European Commission also took action with an EU-wide rescue plan that
included cuts to the European Central Bank's key interest rate and easing of
its lending conditions for banks. French banks weathered the crisis in relatively
good shape compared with other countries: only two banks suffered sufficiently
heavy losses to threaten their solvency, while most of the other French banks
were profitable in 2008 (OECD, 2009).
At the fiscal level, a series of measures in 2007 and 2008, including a reduced
number of tax brackets and a more generous earned-income tax credit (known
as prime pour l'emploi), led to lower personal and corporate income tax
revenues. However, these and other tax cuts were not accompanied by sufficient
control over public expenditure, and the deficit as a percentage of GDP passed
the 3% threshold in 2008, reversing the trend from 2003 to 2006 when the
general government deficit shrank from –4.1 to –2.3% of GDP (OECD, 2009)
(Table 3.1).
1 A 100% state-owned agency, the Société des Prises de Participation de l’État, was created; it acquired securities of
indefinite term issued by the banks concerned and earns an annual interest of 8.2%.
2 The Société de Financement de l’Economie Française, owned 66% by the banks and 34% by the state, was set up to
provide loans for a period of five years. Conditions include posting collateral that met certain requirements in terms of
quality and an interest rate that represented a margin of 180 basis points over the rate the Société paid for its borrowing.