French Economy Urged to Undergo “Shock Therapy”
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A government-commissioned study of the French economy by industrialist Louis Gallois, the former chief of aerospace group EADS, has called for a “competitive shock therapy” for the economy, arguing that the country that is facing a “crisis of confidence”.
The analysis, complied by Gallois, called for a 30 billion euros payroll tax cut, equivalent to 1.5 percent of the French GDP, as the centrepiece of an urgent effort to stem the industrial decline that has eroded the global competitiveness of French companies.
A government-commissioned study of the French economy by industrialist Louis Gallois, the former chief of aerospace group EADS, has called for a “competitive shock therapy” for the economy, arguing that the country that is facing a “crisis of confidence”.
The analysis, complied by Gallois, called for a 30 billion euros payroll tax cut, equivalent to 1.5 percent of the French GDP, as the centrepiece of an urgent effort to stem the industrial decline that has eroded the global competitiveness of French companies.
The reduction will come in the form of a 20 billion euros tax break for businesses as well as a 10 billion euros break for workers on the lower end of the wage scale.
Submitting his report to Prime Minister Jean-Marc Ayrault, Gallois described his economic remedies as a “competitiveness shock” and added that France is facing a “crisis of confidence”.
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Noting that France industrial sector has lost two million jobs in the past three decades as the country’s trade balance deteriorated, the report also criticised the “cult of regulation” that renders French industry uncompetitive.
“This is the right diagnosis,” Laurence Parisot, head of the Medef employers’ union, said in a statement. “Competitiveness has been our warhorse for many years.”
Jean-François Copé, a candidate for the leadership of the UMP, France’s leading opposition party, said:
[quote] There is only one question that needs to be asked now, and that is: What will Francois Hollande do with these suggestions? [/quote]
Similarly, the IMF, in its annual review of the French economy, said France should ease employment laws to make it easier to employ and dismiss workers, as well as cut payroll taxes to encourage employers to hire more staff.
The IMF also suggested the government should make working hours more flexible, limit future rises in the minimum wage and reduce unemployment benefits during economic upturns to provide a greater incentive to look for work.
Despite having the euro zone’s second-biggest economy, after Germany’s, France is struggling with an unemployment rate of 10.8 percent — double Germany’s — and feeble growth.
The IMF said:
[quote] [France’s] growth outlook is being overshadowed by a significant loss of competitiveness. The loss in competitiveness predates the crisis, but risks becoming even more severe if the French economy does not adapt along with its major trading partners in Europe. [/quote]
President Hollande, whose official response to the Gallois report is due on Tuesday, has insisted he would take “tough decisions” on the economy, but said his approach needed to be “holistic”.
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