France must cut spending and reform pensions, says EU
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The EU said Wednesday that France must start reforming pensions, cut spending and simplify corporate taxes this year if it wants more time to slash its budget deficit. President Francois Hollande responded by saying the EU could not "dictate" orders.
France must this year start to reform its pension system, rein in public spending and further cut labour costs in return for getting two more years to bring its budget deficit back in line, the European Commission said on Wednesday.
France must also simplify its tax system to help companies, and should use all windfall gains for deficit reduction, the Commission, the European Union’s executive body, said in its annual assessment of EU economies.
President François Hollande admitted May 15 that France’s economic situation was “grave”, but noted that the new recession was not as deep as the levels reached in 2008 and 2009. He said the downturn was due in part to a “drop in European demand”.
Hollande, who is experiencing the lowest approval ratings of any modern French president, added that his country's economy was still better off than those of some of its European neighbours.
“The pension system will still face large deficits by 2020 and new policy measures are urgently needed to remedy this situation,” the Commission said.
Possible measures included adapting indexation rules, increasing the statutory retirement age and full-pension contribution period, “while avoiding an increase in employers’ social contributions”, the Commission said.
French President Francois Hollande responded to the statements by saying the EU could not "dictate" orders.
"The European Commission cannot dictate to us what we have to do,” he said. “It can simply say that France must balance its public accounts.”
The Commission said it expected France’s unemployment rate to be 10.6 percent this year and keep increasing to reach 10.9 percent in 2014 – contrary to the government’s stated promise of halting the rising trend by the end of this year.
The EU executive wants France to cut its headline deficit to 3.9 percent of output in 2013, 3.6 percent in 2014 and 2.8 percent in 2015.
“In particular, it is crucial that France’s public spending grows significantly less rapidly than potential Gross Domestic Product as improvements in the structural deficit have so far been mainly revenue-based,” it said.
European Commission President Jose Manuel Barroso told a news conference the message to France was “very demanding”.
“The extra time should be used wisely to address France’s failing competitiveness ... I believe there is a growing consensus now in France about the need for those reforms,” he added.
French officials say that Francois Hollande’s government has already put reforms in motion – from pension to labour rules – and will continue at its own rhythm, which includes seeking deals between unions and employers to try and reach as broad a consensus as possible and avoid possible street protests.
Paris has said it can get its budget deficit back in line with targets as early as next year but the Commission warned that would require too much belt-tightening and so threaten an economic recovery.
Talks among labour unions and employers to reform the pension system, for instance, will kick off in June and will not be passed into law until the second half of the year, meaning the government cannot yet exactly predict its content.
The French economy, which has been stagnating since its last recession four years ago, contracted again in the past two quarters while the number of jobless has hit an all-time high.
The government acknowledged earlier this year that it would not bring its deficit below the EU threshold of 3 percent of GDP this year and slashed its growth forecasts.
(FRANCE 24 with wires)