The country’s loss of competitiveness is a serious issue, especially as its crisis-struck neighbours push on with wage cuts and labour reform.
On Monday, Louis Gallois, former head of EADS, is going to publish his report on the issue, and he’s expected to call for a “competitiveness shock”. He’s already said that he wants to see somewhere between €30bn-€50bn of taxes from the payrolls transferred to broader-based taxes, such as VAT, much to the delight of business leaders.
Reform really can’t come soon or fast enough. As The Economist writes (our emphasis):
Over the past 12 years, France has steadily lost competitiveness to Germany, its fellow euro-zone giant. A recent competitiveness study by the World Economic Forum ranked Germany sixth, and France 21st. Labour costs have risen far faster than in Germany. French public spending, at 56% of GDP, is ten percentage points higher than in Germany. France’s share of extra-EU exports has dropped and the trade deficit has reached €70 billion. The Netherlands, with a fraction of its population, now exports more than France.Last year, the welfare taxes levied at French employers were among the highest in the eurozone at €50.3 for every €100 paid to an employee versus €28 in Germany, according to Medef, the French employers’ lobby.
If you’re unconvinced, here’s French economic decline and German strength in chart form:
But Francois Hollande’s government has only gone as far as call for a competitiveness “pact” (to be implemented over a five-year period). It hardly suggests urgency. And this already-too-weak message is much undermined by his 2013 budget, which, proposes to raise €20bn more in tax (half of which would come from the corporate sector), while reducing public spending by just €10bn. Unsurprisingly, businesses see it as a deterrent to job creation and investment..."
at http://ftalphaville.ft.com/2012/11/02/1243881/the-peripheral-threat-to-france/
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