France

France’s economy is the fifth largest in the world and represents around one fifth of the Euro area
gross domestic product (GDP). Currently, services are the main contributor to the country’s
economy, with over 70% of GDP stemming from this sector. In manufacturing, France is one of the
global leaders in the automotive, aerospace and railway sectors as well as in cosmetics and luxury
goods. Furthermore, France has a highly educated labor force and the highest number of science
graduates per thousand workers in Europe.

In the external sector, France’s closest trading partner is Germany, which accounts for more than
17% of France’s exports and 19% of total imports. France’s primary exports are machinery and
transportation equipment, aerospace equipment and plastics, while primary imports include
machinery, automobiles and crude oil. Additionally, France is the most visited country in the world,
making tourism a prominent sector in the economy.

Compared to its peers, the French economy endured the economic crisis relatively well. Protected, in
part, by low reliance on external trade and stable private consumption rates, France’s GDP only
contracted in 2009. However, recovery has been rather slow and high unemployment rates,
especially among youth, remain a growing concern for policymakers. After the start of the crisis the
economy stagnated and the country has had to face several economic challenges. Government tax
revenue has dwindled and consumer purchasing power has declined. Policy makers have attempted
to modernize the economy; however, this has been a difficult process. The former Sarkozy
government became deeply unpopular, partially due to its reform agenda. Nonetheless, with a
government budget deficit that is higher than the Euro-area average and low growth forecasts, the
current Hollande government faces the challenge of restoring France’s public finances while
encouraging economic growth.

Economic History

Following World War II, Charles De Gaulle’s center-left government implemented an economic policy
of dirigisme while rebuilding the country. The state took control of certain key industries, including
transportation, energy and communications, and set up a planning agency to regulate economic
activity. The first national economic development plan, the Monnet Plan, and subsequent plans
became a distinctive feature of France’s post-war economic policy. In addition, De Gaulle began the
construction of a welfare state in France and established key institutions such as social security and
works councils that remain today.

France’s post-war economic strategy proved to be successful and France entered “Les Trente
Glorieuses” (“The Glorious Thirty”), a period of accelerated economic growth, experiencing high
gains in productivity, GDP and real wages. In 1983, mounting public debt, inflationary pressure, and
internal and external imbalances caused the French government to transition from “dirigisme” to
enter an era” de la rigueur” or an era of privatization. The government began retreating from direct
economic intervention, privatizing some state companies and adopting more market-orientated
policies. However, remnants of “dirigisme” can still be found in the French economy today as the
government continues to hold large stakes in a range of key sectors.
Throughout this time period, the French government, along with principal trade partner Germany,
advocated increased European economic integration. France was a founding member of the
European Coal and Steel Community and the European Economic Community, precursor
organizations to the European Union. Further, France was one of the first countries to adopt the euro
and the French economy remains highly integrated with Europe today.

In recent years, France, similar to many European nations, has experienced stagnating growth and
fiscal challenges. Under former President Sarkozy, the country implemented austerity measures to
tackle the budget deficit and public debt. However, France’s GDP has remained almost unchanged
since 2011 and the unemployment rate remains high. To reinvigorate the French economy, current
President Hollande faces the task of cutting public spending while spurring job creation.

Balance of payments

Since 2005, France has maintained a current account deficit, predominantly driven by trade in
goods. Yet, in 2013, France’s trade deficit shrank to its lowest level since 2010, although this
decrease was mainly caused by the fact that exports fell less rapidly than imports.

Correspondingly, capital inflows have also fluctuated in the past, typically driven by large amounts of
Foreign Direct Investment (FDI). France was ranked 10 in the world for incoming FDI in 2010 and
has historically been a leading FDI destination. However, FDI experienced a large decline in 2013,
contracting 77%. The countries with the largest investments in France are the United States,
Germany, Italy and the United Kingdom.

North Korea
North Korea remains an unreformed and closed state as Kim Jong-un maintains a
despotic regime that resists economic reform. The government has experimented with a
few market reforms but mainly administers a system of centralized planning and state
control of the economy. The impoverished population is heavily dependent on food
rations and government housing subsidies.

North Korea may be attempting modest economic opening by encouraging limited

foreign direct investment, but the dominant influence of the military establishment makes
any meaningful near-term change unlikely. Normal foreign trade is minimal, with China
and South Korea being the country’s most important trading partners. No courts are
independent of political interference.

In May 2016, North Korea convened the first Korea Workers’ Party Congress in 36 years
and only the seventh in North Korean history, generating speculation about possible
sweeping policy changes, but the congress merely affirmed North Korea’s dogged
pursuit of nuclear weapons and continuance of socialist policies. Kim Jong-un has
warned that opening the country would expose it to the contagion of foreign influences.
In 2016, North Korea conducted more nuclear and long-range missile tests in defiance
of U.N. resolutions, earning widespread condemnation. The regime continues to
threaten nuclear attacks on the United States and its allies and is augmenting its nuclear
and missile-delivery capabilities.

Almost all property belongs to the state. Government control extends even to chattel
property (domestically produced goods and all imports and exports). A functioning,
modern, and independent judiciary does not exist. Bribery is pervasive, and corruption
is endemic at every level of the state and economy. The ruling Workers’ Party, the
Korean People’s Army, and members of the cabinet run companies that compete to
earn foreign exchange.

No effective tax system is in place. The government commands almost every part of the
economy. The government sets production levels for most products, and state-owned
industries account for nearly all GDP. The state directs all significant economic activity.
Disproportionately high military spending further drains scarce resources. Despite an
attempted state crackdown, black markets have grown.

The state continues to regulate the economy heavily through central planning and
control. Entrepreneurial activity remains virtually impossible. As the main source of
employment, the state determines wages. Factory managers have had limited
autonomy to offer incentives to workers. North Korea receives extensive food and
energy subsidies from China. Its monetary regime is completely controlled, leading to a
total distortion of prices.

Trade and investment flows are impeded by the North Korean government and by
actions that have resulted in multilateral economic sanctions. There is virtually no
functioning financial sector. Access to financing is very limited and constrained by the
repressive economic system. The government provides most funding for industries and
takes a percentage from enterprises.