Rehn Calls Out France as Weak Link in Eurozone

 
on April 11 2013 8:37 AM

The euro stumbled on Thursday morning and traded down to $1.30. Growing financial, political and social problems in the region have been weighing on the common currency recently, and many aren't expecting a resolution anytime soon.

The European Commissioner for Economic and Monetary Affairs, Olli Rehn, warned that France is beginning to pose a large risk for the region on Wednesday.

Speaking at the presentation of a report which compared the health and competitiveness of eurozone economies, Rehn pointed out that France's size and position in the eurozone makes its health an important factor in the bloc's success.

The French trade balance has been falling since 1997 and though it avoided recession in 2010 and 2011, growth prospects for the future look bleak. France's labor market makes it difficult to reallocate workers to make the economy more efficient and for this reason, the report stated that French companies have the lowest profit margin in the eurozone.

He also pointed to Italy as a key factor in the European recovery, saying that labor costs in the country are bringing down productivity. The smaller, more specialized Italian companies are slowly being replaced by larger, more productive competitors in places like China.

According to the New York Times, the eurozone's gross domestic product is expected to contract 0.3 percent in 2013.

The drop in GDP will be hard hitting, especially to those countries which are still trying to fix imbalances that allowed them to borrow more money than they were able to repay.

Rehn reiterated criticism of the bloc's austerity centered recovery plan, and called on Germany to help spur spending and kick start economic growth. Much like Jacob Lew, the US Treasury Secretary who met with European lawmakers earlier in the week, Rehn believes Germany holds the key to a swift recovery.

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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