France must dramatically slash its labour costs to become more competitive.
That is the conclusion of a review by French industrialist Louis Gallois.
He wants the people and politicians to “patriotically” back what he calls shock therapy to reverse the country’s declining competitiveness.
The Socialist government commissioned the review, but is unlikely to follow its recommendations.
Gallois, the former head of aerospace firm EADS and French state railways, said: “My diagnosis is based on a rather severe decline in French industry, which has experienced an accelerating decline in the last 10 years. I am proposing 22 key measures which I call ‘a competitiveness shock’ to recover from this huge crisis of confidence.”
With French hourly labour costs among the highest in Europe – more than twice what they are in Britain – Gallois wants the government to slash social contributions for employers and employees and to make labour laws more flexible to boost exports and the number of factory jobs.
President Francois Hollande has, however, already ruled out any “shock” measures even though the International Monetary Fund is also urging major reforms by France to boost its competitiveness and economic prospects.
In its annual report on the French economy, the IMF said President Hollande had bolstered his credibility with financial markets with his pledge to cut the public deficit to 3.0 percent of economic output next year from 4.5 percent in 2012.
But it added: “(France’s) growth outlook is being overshadowed by a significant loss of competitiveness.”
“This loss predates the current crisis, but there is a risk it will get worse if France does not adapt at the same pace as its trading partners in Europe, notably Italy and Spain,” the IMF said.
Echoing Gallois, the Washington-based organisation said France should seek to ease its rigid labour regulations, which make it hard for companies to hire and fire workers as business cycles fluctuate, and lighten payroll taxes which are a disincentive to investment.