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In this chapter, the authors describe the evolution of the French economic policy, from 'dirigisme' to 'social anaesthesia', to 'liberal statism', and explore the contradictions deriving from France's problematic partnership with Germany. They illustrate the process of liberalization of the French labour market, the increasing segmentation of the labour market, together with the attempt to anaesthetize the social and economic consequences with a massive expansion of social expenditure. France's European policy was guided by the desire for political leadership within Europe. This was pursued by cultivating a special partnership with Germany, while preserving elements of its statist model. The authors explore the relative structural decline of France focusing on the weakening of a key manufacturing industry – automotive. The liberalization of the financial markets within the European Union and the neoliberal programme implemented by the French governments since the 1980s, which reduced the control of the state on the allocation of resources, favoured the rise of the financial sector.

This chapter goes beyond the core-periphery divide to consider the socio-economic divisions within the core and the peripheral countries. It looks specifically at the relation between income distribution and imports as an example of how social and economic developments retroacted on the core-periphery relations. The chapter focuses on the formation, in Germany, of a dualistic labour market, which resulted in an increasing share of the German population living in poverty. The increasing fragmentation of the periphery corresponds to a worsening of the regional divide within each single country. Inequality had been on the rise in the Southern European countries long before the crisis: labour market reforms led to a polarization of the labour market that the lack of a universal safety net made socially unbearable. The abandonment of the industrial policy in favour of a market-oriented agenda and the differential impact of the 2008 crisis caused the enlargement of the gap.

This chapter illustrates the hierarchical reorganization of the European economy from different perspectives. It describes the evolving structure of the network of trade among Germany, France, Southern periphery (SP), Eastern periphery (EP) and key international partners. It documents the rise of Germany's trade leadership since the introduction of the euro in 1999, the resizing of the SP and the increasing relevance of the EP. The chapter considers the structural relations, taking into account the international fragmentation of production and the different offshoring strategies. It focuses on the automotive sector in order to observe in more detail the creation of a central-European enlarged core and the competing peripheries' divide. The chapter analyses the evolving shapes of networks 1 and 2 for the years 1999, 2008 and 2014. This time span covers the European trade relations before and after the euro's introduction, and before and after the crisis.