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Despite being burdened with the highest level of public expenditure as a share of GDP in the eurozone (and among the OECD club of advanced economies for that matter), France still ran a fiscal deficit last year that was larger than Portugal's as a percentage of output.
France's current account balance, relative to the size of its economy, is closer to the substantial deficits recorded by Italy and Spain than the small surplus for the eurozone as a whole. The unemployment rate is higher than in Italy, while GDP growth in 2012 and 2013 is expected to be the second lowest in the G7 group of rich nations, according to the IMF. Although France has been flirting with austerity recently, its economy is looking more like those of its southern neighbours and less like Germany's.
French banks are particularly at risk. According to figures from the Bank for International Settlements (BIS), they account for 30 per cent of European banks' consolidated claims on the eurozone's five peripheral economies, a higher exposure than that of their German peers because of their much larger holdings of Italian public and private debt. French stocks even managed to miss out on this year's global equity rally, having fallen by 4 per cent in the last three months as bank shares underperformed.
Investors are aware of all these risks. The question is whether they are pricing them correctly. The authors believe there has been a degree of market complacency about France, partly because of the country's strategic importance and perceived status as a relative safe haven in the eurozone. The more the markets have questioned France's creditworthiness, the more President Sarkozy has sought to nail France's colours to the mast of German fiscal rectitude.
These efforts have always rung hollow. They now strain credulity.