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French report French report
by Euro Reporter
2012-11-16 08:51:55
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France tells Germany it will slash deficit

France’s prime minister assured Germany on Thursday that his country is committed to getting its debt under control, amid concerns that the second-largest economy in the eurozone is weakening. During his first visit to Berlin since taking office in May, Jean-Marc Ayrault sought to dispel fears that Germany’s most important ally in fighting Europe’s debt crisis could itself be heading for trouble just as the French government has to slash spending to reduce its deficit. France wants to ‘‘stop burdening future generations with continuously rising debt and restore the necessary leeway for political actions,’’ Ayrault told a gathering of German business leaders. He stressed that ‘‘we are aware that getting the public finances in order is also the precondition for our sovereignty.’’ Eurozone members Greece, Ireland and Portugal have all had to accept painful austerity demands in return for bailouts from the bloc’s richer nations. According to official figures published Thursday, France narrowly dodged recession in the third quarter. Its economy expanded 0.2 percent in the July-September period from the previous quarter — as did that of Germany, where growth is slowing.

President Francois Hollande’s Socialist government last week announced measures to rein in government spending, lower labour costs to strengthen the country’s competitiveness and reduce the deficit, largely by raising taxes. ‘‘I wholeheartedly wish success to what is being set in motion in France now,’’ German Chancellor Angela Merkel said following talks with Ayrault. ‘‘Our goal is to return to growth,’’ Ayrault maintained. Still, France has watched unemployment tick steadily up as a raft of companies announced layoffs in recent months. The jobless rate now stands at 10.8 percent, according to European statistics. Thursday’s edition of Britain’s weekly The Economist featured a special report on France, with the magazine’s cover reading ‘‘the time bomb at the heart of Europe.’’ France’s woes have also started to worry some in Germany, who fear their closest ally’s political clout could be reduced by its economic weakness. ‘‘France is our closest partner in Europe. It would be good if the Socialists there would now courageously embark on real structural reforms,’’ Volker Kauder, the parliamentary leader of Chancellor Angela Merkel’s conservative bloc, said last week. ‘‘That would be good for the country and so for Europe.’’

Speaking at the conference after Ayrault, the head of Germany’s influential BDI industry lobby group insisted that both, Germany and France, must be economically strong to continue leading the European Union. ‘‘There is no Europe in which Germany and France do not play in the same league,’’ said Hans-Peter Keitel. ‘‘You cannot separate us,’’ added Keitel, who has met twice with Hollande this year. German Finance Minister Wolfgang Schaeuble, speaking at the same conference, said European nations who jointly make up the world’s biggest economy should not give each other marks but work together. ‘‘The world needs a strong Europe,’’ he said. Ayrault, in turn, said the ‘‘overly high level of preoccupation in Germany’’ over the euro crisis may be due to the fact that Germany will hold national elections next year. ‘‘Then tensions are always on the rise,’’ he told German daily Sueddeutsche Zeitung in an interview.


France rejects EU budget compromise

France has dismissed a compromise proposal for the EU’s long-term budget as unacceptable, further complicating efforts to win a deal when EU leaders hold a special budget summit next week. Jean-Marc Ayrault, the French prime minister, objected to deep cuts to agriculture spending included in the proposal, but also expressed displeasure with reductions in the development money, known as cohesion funds, that benefit poorer regions. Mr Ayrault pledged that France would “continue to work in a constructive manner to find an overall accord”. Nonetheless, several diplomats expressed concern that efforts by Herman Van Rompuy, the European Council president, to mollify the UK and other budget hawks may have created fresh problems with France, one of the budget’s biggest contributors. “The French will be very unhappy with this paper. I have absolutely no doubt,” one senior diplomat said on Thursday morning. The biggest object of displeasure appeared to be Mr Van Rompuy’s move to trim €25bn from the common agricultural policy – traditionally France’s biggest priority – compared with a proposal from the European Commission, the EU’s executive arm. Those cuts include a €12bn reduction in direct subsidies to farmers.

Some analysts argue the cull was even more dramatic because agriculture was starting from a low base – historically speaking – in the commission proposal. A draft produced last week by Cyprus, the current holder of the EU’s rotating presidency, was more sympathetic to France. It weighted its reductions more heavily against the development money that disproportionately benefits poorer member states in central and Eastern Europe. Mr Van Rompuy’s focus on agriculture appeared to be an effort to appease demands from the UK, Sweden and other countries to “modernise” the budget, and invest money in areas more likely to create economic growth.

One beneficiary of this switch was a “connecting Europe facility” touted by the European Commission, the EU’s executive arm, to build cross-border infrastructure projects, such as gas pipelines and rail lines. Mr Van Rompuy restored about €10bn that had been slashed by the Cypriots. Agriculture is not France’s only concern. Cuts to the cohesion budget look set to fall disproportionately on its own regions, which tend to be bastions of support for François Hollande, the socialist president. Paris may also have been stung by Mr Van Rompuy’s decision to endorse the UK rebate, the burden of which falls disproportionately on French and Italian taxpayers. Under the proposal, the rebate would be modified so that the UK and Germany – currently exempted – would have to pay a share of the British rebate. EU officials have suggested the financial impact would only be slight, although they have declined to specify it. Bernard Cazeneuve, France’s Europe minister, said on Wednesday that France was against the continuation of budget rebates for countries such as the UK, Germany, the Netherlands and Sweden. “We don’t want these rebates to continue because they represent an anti-European way of thinking,” he said. Meanwhile, Stéphane Le Foll, French agriculture minister, said he was in “deep disagreement” over the proposed cuts, saying the Cap and cohesion funds were “the two big policies that directly apply to European citizens” and which should not be reduced “in this period of crisis”.


French unions say deal far off in labour reform talks

French unions rejected a proposal for labour reform from employers on Thursday because it failed to improve job security, a sign that a deal seen as crucial to reviving the economy is unlikely by the government's year-end deadline. The Socialist government has pledged to submit a labour reform to parliament early next year even if unions and employers cannot clinch an agreement, but failure in the talks would damage its credibility and strain relations with unions. "As things stand at the moment, it will be very, very tricky to reach a deal," said Agnes Le Bot, a negotiator for the CGT union, France's second largest. The government wants as many as possible of the five unions involved in the talks to sign a deal to lend it political legitimacy and reduce the chances that left-wing groups in parliament will seek to water it down. Three moderate unions are expected to cooperate but experts say the signature of at least one of the two remaining hardliner unions is desirable. Given that the Communist-backed CGT is unlikely to sign any deal, attention is focused on the FO union.

If a majority of unions oppose a deal, the talks will be seen to have failed. Pressure to rescue a declining industrial sector and revive exports has pushed President Francois Hollande to undertake a series of pro-competition reforms, including a 20-billion-euro tax credit for corporations to ease their costs. In addition to shoring up the economy, the competitiveness package aims to reassure holders of French debt and its main economic partner in the euro zone, Germany, that France's ultra-low borrowing costs are justified. Yet observers including credit ratings agency Standard & Poor's and the International Monetary Fund say that France will not regain a competitive edge unless labour rules are relaxed. Echoing the concerns, an economic adviser to German Chancellor Angela Merkel told Reuters last week that France was now the euro zone's biggest problem.

Employers and analysts agree that highly protective labour laws act as a brake on hiring and investment because companies cannot adjust their wage burden easily during a downturn. Calling for an "historic deal", the government has urged the parties to conclude their talks by end-2012 with a view to sending a draft law to parliament early next year. "This time frame is unrealistic," said FO's Stephane Lardy. "They must stop talking about historic deals and let us work." Parties have fallen behind schedule, with a round of talks on Nov. 22 cancelled and only four sessions left before year-end, meaning the government may have to extend its deadline. "There's an enormous amount of ground to cover," said Bernard Vivier, head of the IST labour think-tank. "Some points are extremely sensitive for unions and they won't concede anything easily." Employers want to change the regulations governing layoffs by capping compensation and reducing the maximum period in which workers can contest them to one year from up to five at present.

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