France, struggling in recession, must reform its costly pension system and free up a rigid labour market to put its economy back on track and stabilise strained public finances, the European Commission said Wednesday.
French President François Hollande hit back however saying the European Commission could not "dictate" orders.
"The European Commission cannot dictate to us what we have to do. It can simply say that France must balance its public accounts," he said.
"As far as structural reforms are concerned, especially pension reforms, it is up to us alone to say which is the best path to attain this objective," he said, adding that talks on the subject were ongoing with social partners to achieve this with "consensus, justice and responsibility."
Thomas Klau, head of the Paris office for the European Council on Foreign Relations told The Local it's time for Hollande to act.
"Hollande has said himself that the pension system needs reforming and the labour market is something they have began to tackle all be it gingerly but he really needs to go for it now," Klau said.
"Pension reform has been a longstanding priority but its obviously a sensitive issue in France and can mobilize huge opposition. Most countries have not fully dealt with the problem of the aging population and France is definitely lagging behind," Klau added.
Equally important, Klau says is labour market reform.
"There are far too many young people in France stuck in badly or even unpaid internships or low salaried jobs. This is an issue that must be dealt with," said Klau.
The Commission also gave France two years beyond its original deadline to bring a budget deficit estimated at 3.9 percent of gross domestic product this year, to 3.6 percent of GDP in 2014 and 2.8 percent in 2015 – back below the 3.0-percent EU limit.
Current estimates put the deficit – the shortfall between government revenue and spending – at 3.9 percent of GDP this year and 4.2 percent next, with the economy set to shrink 0.1 percent in 2013.
The Commission said that to meet the new targets, the French government had to build on the steps already taken to liberalise the labour market, streamline the fiscal system and remove restrictive practices in the economy.
A key first step, however, will be for Paris to take steps "by the end of this year to reform the pension system and ensure it is in equilibrium not later than 2020", it said.
As an ageing population pushes pension costs ever higher, the government will have to index payments, adjust the retirement age — already creeping up steadily — and generally reduce the system's overall costs, all at the same time as not increasing the burden on employers.
Additionally, France will have to continue to reduce labour costs for employers, such as their social security contributions; boost services and export sector competitiveness, especially among small- and medium-size companies; and streamline the tax system.