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Cracks in France…as Southern Europe Moves Ahead

Thursday, 15 Nov 2012 | 8:45 AM ET

As Southern Europe looks to be getting its house in order in the wake of the currency bloc's debt crisis, a new report suggests France's weaknesses are now becoming even more apparent.

The report by Credit Suisse suggests that as peripheral Europe implements reforms and austerity programs, France, which badly requires structural reforms in a number of areas including taxation and its labor laws, is lagging behind in stark contrast.

Credit Suisse claims that "although France still has significant strengths and the competitiveness level is high, the fact that peripheral countries are implementing far-reaching reforms makes the relative standstill of the country increasingly visible."

It adds that the government, headed by Socialist President Francois Hollande, is tackling France's competitiveness issue by approving measures designed to reduce labor costs and cut corporation taxes. However, the bank argues that other reforms are "badly needed."

(Read More French Superstar Actor Joins List of Tax Expats)

According to the bank's analysis, France had one of the most rigid labor markets within the euro area based on OECD indicators, but it has also been lagging with reforms, while many of its peers have been implementing significant measures to address their rigidities.

The report states that France is the euro zone's "median country" in that most policies in the euro area are "tailored" to fit France and it could benefit from policy changes at the euro area level if its economic situation worsens. But it also warns that a lack of timely reforms could mean the loss of this median status.

(Read More French Government Creating Recession, Economists Warn)

Data released on Thursday showed France posted a small rise in GDP of 0.2 percent in the third quarter, even as the euro zone entered its second recession since 2009 in the same quarter.

(Read More Euro Zone Slips Into Second Recession Since 2009)

The report warns that although France outperformed the euro area in 2012, it will underperform slightly next year. It also suggests that the ease of doing business in France has been deteriorating in the past few years rather than improving.

Citing the World Economic Forum's Global Competitiveness Index (GCI) France has fallen from 15th place in 2010 to 21st in 2012 out of 144 economies. Credit Suisse expects further weakening in France's ranking to 34th place by 2013.

-By CNBC's Shai Ahmed, Follow her on Twitter @shaicnbc

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