France vows ‘tough’ action

President Francois Hollande pledged “tough decisions” as his government was yesterday urged to cut labour costs by €30bn ($38bn) and the IMF warned that poor competitiveness was the French economy’s biggest problem. “Tomorrow the government will draw conclusions from the Gallois report and tough decisions will be taken,” the Socialist president said, referring to the 22-point document by Louis Gallois, former head of the Eads aerospace group. But he tempered expectations of radical reform by stressing the need for a “holistic policy” in his comments to reporters in the Laotian capital Vientiane, where he is attending an EU-Asia summit. Hollande ordered the report as France’s industry has lost its competitive edge while the country is faced with dangerously overstretched public finances, anaemic growth and a huge trade deficit. France’s share in global trade has nearly halved since 1990 and its hourly manufacturing costs are a fifth higher than the eurozone average. Gallois, who presented his report to Prime Minister Jean-Marc Ayrault in Paris, proposed loosening labour laws and slashing employer payroll levies by €20bn and those paid by employees by €10bn over two or three years. This would mean shifting part of the tax burden on to workers by increasing the so-called CSG levy which helps fund the social security system and increasing the Vat sales tax. “The French must back this collective effort,” Gallois told reporters as he left the prime minister’s office, appealing to his compatriots’ “patriotism”. The Gallois report is the latest in a long line of such reviews of what is wrong with the French economy, which have tended to be quietly locked away where they cannot upset the voters. Critics say this is likely to happen again as Hollande, whose opinion poll ratings have plummeted since he was elected in May, seeks to avoid controversy. His ministers have already rejected a suggestion Gallois made in July that what the country needs is a big and sudden “shock” to boost competitiveness, saying instead that measures in a “competitiveness pact” they intend to create will be spread out over five years. And yesterday, just hours after the report was handed in, the prime minister’s office said that one of its proposals — on the exploitation of shale gas — would definitely not be taken on board. The Gallois report has been described by the right-wing opposition as a last chance to change direction. The IMF echoed that view yesterday in a report on the French economy that said the “competitiveness gap emerges as the main challenge for macroeconomic stability, growth, and job creation”. The loss of competitiveness predates the economic crisis that has engulfed much of Europe, but risks becoming even more severe if the French economy does not adapt along with its major trading partners in Europe, it said. These partners, notably Italy and Spain, are now, after Germany, engaged in deep reforms of their labour markets and services sectors. “The (French) government has rightfully launched a broad debate on the subject and has engaged social partners in a dialogue on critical reforms. This creates a unique opportunity to achieve meaningful reforms,” the IMF said. A competitiveness pact is shaping up to become the Socialists’ main initiative to rejuvenate the economy as the government’s hands are pretty much tied in terms of fiscal policy.