France unveils raft of reforms to boost jobs

France laid out a new package of reforms on Wednesday to respect EU rules, cut spending, boost jobs and put its economy in shape to compete on world markets.

France unveils raft of reforms to boost jobs
France says its economy will grow despite billions of euros in planned budget cuts. Photo: Euros.

The new government of Prime Minister Manuel Valls, which had wavered in its commitment to meet an already extended EU timetable, said it would cut overspending to 3.0 percent of output by the end of next year.

The economy would grow by 1.0 percent this year, rising to 1.7 percent next year and to 2.25 percent in 2016 and 2017, the government forecast in approving a financial stability programme.

The commitment to respect EU rules will come as a relief to EU authorities which had cold-shouldered attempts by the new government to obtain extra leeway on the deficit.

The Valls government's deficit policy was also awaited by France's partners in Europe, and on financial markets where there is concern that France has fallen badly behind with reforms to raise competitiveness and reduce a huge trade deficit.

France is in the grip of a struggle to pull away from a climate of stagnation, while introducing long-delayed reforms.

As the government announced details of its plans to get its economy  back on track, European Union data showed that the eurozone's average public deficit was now down to the limit of 3.0 percent of output.

The French programme, under a medium-term outlook which all eurozone members are now obliged to submit to EU authorities, was approved for submission to parliament where the government has a comfortable majority.

The government is also counting on economies in other countries picking up and so increasing demand on French exporters.

But Finance Minister Michel Sapin repeated the government's line that the economy is being hit by the euro exchange rate which was "too high".

The government faces deep political tensions in enacting its measures, with many of its supporters hostile to the change of direction and the public deeply worried about prospects for the economy and their families, but also about the impact of cutbacks.

Optimistic forecasts

There is also scepticism that the details behind the programme, the targets and forecasts are based on unduly optimistic expectations.

This was highlighted by the president of the High Council for Public Finances, Didier Migaud, who told a parliamentary commission that although the forecasts for 2014 appeared "realistic", those for 2015 "are based on a virtuous chain of every favourable hypothesis", although this did not mean that they could not be achieved.

To achieve the deficit limit laid down by the European Commission, the government said it would reduce the deficit to 3.8 percent of gross domestic product this year from 4.3 percent in 2013.

Under the raft of reforms, some hotly contested by many supporters of the Socialist government,  public spending would amount to 56.7 percent of output this year, falling to 53.5 percent in 2017.

The debt relative to output would fall from 2016, and reforms would boost growth by half a percentage point from 2014 to 2017, the government forecast.

A key plank of the policy to correct public finances is to cut spending by €50 billion ($69 billion) from 2015 to 2017, including €21 billion of cuts in welfare.

The government says this will work alongside a so-called responsibility pact, already in the pipeline, but held up, based on cuts in taxes and social charges on businesses.

The pact would create 200,000 jobs by 2017, the government said.

Unemployment in France is running at record levels and was one factor behind humiliating defeats for the Socialists in recent local elections.

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