The following graph represents the economic situation in France and Germany in the context of the French scal stimulus (1980-1983] No stimulus (1980) Budget balance [T - 6) {ratio of GDP) GDP growth me (it) Growlh rate of exports warm: (as) | -' h Growth to of imports mum to _ d Germany France French stimulus {1982) Budget balance (T - 6) (ratio of GD?) GDP growth rate [5) 5W\"? \"'9 of "W" WM\"! {9'} _ smmwmnmmmmmm _I - Post stimulus (1983) Budget balance [T - G) {ratio of GDP) GDP growth rate (13] Growth rate of exports NIH-"Hm [95] Growth rate of imports mom (I) The upturn in the French economy led French households to increase their spending, but much of this was on foreign goods. The French stimulus spilled over to countries that produced more competitive products, like Japan [electronic goods] and Germany (cars). There was a surge of imports into France: measured relative to the level in 19?9, imports were higher by 17.9%, as shown in Figure 14.16. Germany's exports were higher by 17.1% in 1982 and by nearly 14% in 1983. As a result, GDP growth was higher in Germany than in France in 1983. The French stimulus policy mostly benetted its trading partners who had more competitive goods. France slipped behind the pack of European countries, with lower growth and a high government budget decit [above 3% in 1983). The failure of Mitterrand's policy was reected in economic terms by pressure on the French franc {the unit of currency during the period). Between 1981 and 1983, the French government had to devalue the franc three times in an effort to make French goods more competitive with those produced abroad. Mauroy stepped down in 1984 and the new prime minister introduced an austerity policy. The Mitterrand experiment highlights the limits of using a scal stimulus to successfully stabilize a deep recession. In the case of France, the policy was badly designed and it delayed the adjustment of the French economy to the shocks that had affected it in the 1970s. Note that the problem in France was not only high unemployment. Injecting more aggregate demand stimulated spending, but not spending on French output. The multiplier was very low and the spillover effects to other economies meant that most of the stimulus leaked out of France. Had the major European economies adopted scal expansionary policies simultaneously the results would have been different, as the spillover effects of Germany, say, would have stimulated the French economy. This is an example of poor policymaking due to a failure to understand the country's links with the rest of the world. Take one point of extra credit by checking the all of the above box below. 0 Mitterand didn't know what he was doing 0 Three devaluations in three years doesn't sound like great policy 0 Fiscal stimulus followed immediately by austerity is pretty dumb tbh 0 France is probably better off having given up its currency to join Germany in a monetary union 0 all of the above