Industry, trade… How much does the Corsican economy weigh?

As demands for more autonomy are heard in Corsica, the IESEG School of Management has attempted to assess the economic implications for the island if it were to become independent.

The outbreak of violence in Corsica again put forward certain demands for greater autonomy or even independence for the island. Besides the political question, there is an economic question.

What would be the situation with an independent Corsica? A study by Eric Dor, director of economics at the IESEG School of Management, attempts to answer this question. His conclusion is likely to cool the supporters of a clean and hard separation from the Metropolis somewhat.

Weak GDP

Before assessing the consequences, it is necessary to consider the economic state of Corsica. And that’s not good.

Gross domestic product at current prices per inhabitant of Corsica, available for 2020, is 25,500 euros. This is not only much lower than the national average (€34,000) but is also declining (€27,400 in 2019).

“Apart from Picardy, Limousin and Franche-Comté, all regions of metropolitan France have a GDP per capita higher than that of Corsica in 2020,” we read. “For 10 years, from 2009 to 2010, Corsica is one of the regions of France where the growth of gross domestic product per capita was the lowest. Of course, we can see this also in the period from 2010 to 2020” with an increase of 5%. versus 12%, for example, for the Nord-Pas-de-Calais.

Slightly different activities

In terms of industrial activity, Corsica is characterized by the predominance of trade and catering, which account for 21% of value added versus 16% in Metropolis and 26% of employment on the island. The share of construction is also higher than the national average.

First of all, the share of public and administrative services, such as health and education, is much higher than the national average, the study highlights with a value-added of 33% versus 23% for the metropolitan area and 33% of employment on the island.

Conversely, the manufacturing industry is present very little (3% versus 10%). The small amount of artisanal agriculture in Corsica “provides little added value”. Information and communication services, including computing and all the new related technologies, are “far less present than on the continent”.

Independent Corsica will not be able to maintain its level of GDP

On paper, with such an economic perimeter, an independent Corsica would rank 12th in terms of GDP per capita in euros in the European Union.

To offset the impact of price differences between EU countries, Eric Dora estimates that “Corsica will rank 19th in terms of GDP per capita in terms of purchasing power” with €23,400, ahead of Portugal.

“But this ranking depends on the unrealistic assumption that once independent, Corsica could initially maintain the same level of GDP per capita as within France. In reality, this GDP will initially decline,” the study says.

And to clarify: “It is indeed unrealistic to assume that Corsica will continue to benefit from the same income streams from abroad, whether from metropolitan France or European funds. We also don’t know what the status of Corsica is in terms of international trade. The official doctrine of the European Union is indeed that if the territory of a member state gains independence, it automatically finds itself outside the European Union and necessarily outside the eurozone.

In addition, Corsica’s industrial structure, which is too little diversified, risks stalling growth, unlike other “small” independent European countries such as Malta, which benefit from a wider range of activities.

Towards a sharp cut in social benefits and wages

First of all, the weight of public and administrative services is clearly a risk. “Corsica could hardly support this share of public and non-profit services if it were independent and had to finance them itself.”

“This type of service should be funded from other activities. Such a high share of these services in total value added can only be financed by national solidarity contributions from the rest of France. An independent Corsica, which would have to finance completely on its own, would find it very difficult to maintain this volume of public and administrative services, it would be forced to reduce the volume of public, medical and educational services offered, which, of course, is not what the local population wants, ” Erik Dor emphasizes. .

Consequently, “it would be difficult for an independent Corsica to maintain the levels of old-age pensions and social benefits that it now enjoys within France if it had to finance them itself. The same can be said about the minimum wage, which is difficult to maintain. All of these revenues, of course, need to be adjusted downward from the start to get closer to what is observed in countries with similar GDP per capita.”

The monthly gross minimum wage, which is now 1,603.12 euros in France and therefore in Corsica, is capped, for example, at 792.26 euros in Malta or 822.5 euros in Portugal, recalls Eric Dor. These are countries with GDP per capita, like in Corsica. Thus, this is the minimum wage that could be observed on an independent island.

Foreign trade has stalled, public debt is skyrocketing

According to the study, Corsica has an annual trade deficit of about 1.5-2 billion euros in goods and services with other countries of the world and the rest of France.

“If Corsica were to gain independence, it would be extremely difficult to finance such an external deficit. In order to reduce this external deficit, Corsica would have been forced from the outset to reduce aggregate demand and therefore its gross domestic product.

This trade deficit could also widen as trade under WTO rules would be less profitable for Corsica than trade under European Union rules.

The only solution: very large foreign direct investment in Corsica. “It is highly doubtful that this could have taken place. It would also lead to the subordination of a growing part of the business sector of Corsica to foreign interests, which would be contrary to the aspirations of the local population,” we can read.

In terms of debt, an independent Corsica will start with a public debt of between 115% and 155% of GDP. “In fact, it would be much higher, since initially this GDP would have decreased. It is difficult to see how Corsica could service such a public debt that would remain in the euro. Unless, of course, France agrees to keep all this public debt in euros.”

Without money, the rapid rise in prices

An independent Corsica would be outside the European Union, and therefore outside the euro. It is difficult then to mint money, which implies setting up a central bank and having a significant banking and financial system, which is not the case.

“This new currency will depreciate very strongly against the euro, the dollar and other hard currencies, which will cause a sharp increase in prices in Corsica, where most consumer goods are imported, with a drop in purchasing power,” warns Eric. Dor.

The solution would be to adopt the Montenegrin model. “That is, in any case, to use the euro without being able to participate in its issuance. This is to make the euro legal tender and therefore use it officially without being a member of a monetary union.” But “it would be absolutely necessary that there be enough euros spontaneously returning to the country for this to work,” the study says.

Olivier Chishportish BFM Business journalist

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