Industrial Development: France and Germany Drifting Apart

The significance of the manufacturing sector for the economies of both the European Union and the euro area has declined dramatically over the past ten years. However, development varied between the individual member states, which is particularly evident in a comparison between France and Germany. The manufacturing industry in Germany was able to maintain its position within the national economy, halting the structural change towards the service sector. Conversely, there has been rapid deindustrialization in France: here, value added from the manufacturing sector as a percentage of the overall economy is now even lower than in eastern Germany. Within the German industrial sector, the manufacture of technically complex goods has continued to gain ground. In France, on the other hand, the production of such goods has always been relatively insignificant and, over the last decade, has become even less important. The gap between these two countries is also widening with regard to wage development as well as price competitiveness: in Germany, wage growth has lagged behind increases in production, whereas in France salaries have increased at a much faster pace than production. German manufacturing was, therefore, able to expand substantially into foreign markets, while the French industrial sector is the poorest performing in the EU. If national currencies had been retained, the ramifications of such diverging developments would have been mitigated through exchange rate adjustments. Meanwhile, a currency union requires responsible policies-this also applies to wage development.