–Stresses That France Must Take Steps To Contain Labor Costs

PARIS (MNI) – European leaders are facing a “tight calendar” and
must quickly agree on steps to implement the long-term anti-crisis
measures they agreed at their summit in early December, French Prime
Minister Francois Fillon said Thursday.

“In the coming weeks we need to do everything that should have been
done ten years ago when the euro was put in place,” Fillon said in
opening remarks at a two-day colloquium entitled “New World,” sponsored
by France’s Ministry of Economy, Finance and Industry.

At the summit, leaders said they hoped for work on a new
inter-governmental EU treaty, which excludes the UK, to be completed by
the end of January so they could approve it by March. The hope is that
member countries of the Eurozone, and other EU countries who agree to
adapt it, would secure national approvals by the summer.

Fillon said Europe’s leaders want to “give the euro a second wind,”
both as the “motor” of the European economy and as one of the world’s
reserve currencies. He implicitly rejected the idea of countries leaving
the Eurozone, saying “I don’t believe in massive devaluations” of the
kind that were used to improve competitiveness when each European nation
had its own currency.

“I believe in accepting our responsibility in the face of our past
errors,” he said.

Fillon urged leaders to avoid “doctrinal” debates of national
sovereignty versus European federalism — a disagreement that has pitted
France against Germany — and to get on with the work of implementing
the new agreement in a spirit that is “more rigorous but also shows more
solidarity.”

The summit accord is intended to strengthen surveillance and
enforcement of fiscal rules; commit each signatory nation to a
constitutional balanced budget law; reinforce and expedite the launch of
the EU’s permanent bailout fund, the European Stability Mechanism; and
secure new contributions of E200 billion from EU members to bolster the
resources of the International Monetary Fund.

Fillon said that Europe should “recognize its advantages and use
them to get out of its depressed state.” He warned that it will need all
of its resources to confront “weak or even negative growth in the coming
months.”

On the domestic front, Fillon stressed how far France has fallen
behind Germany in terms of competitiveness and said the government must
take steps to catch up — in large part by getting a handle on labor
costs.

He noted that Germany had undertaken the kind of labor reforms that
France has not, and as a result labor costs in Germany were 25% less
than France’s by the end of 2008. That is one of the reasons why
France’s exports amounted to just 40% of Germany’s in 2009, having
dropped from 60% at the beginning of the millenium, he said.

One of the keys to lightening labor costs will be to find ways to
shift some of the financing of France’s extensive social safety net away
from payroll taxes, Fillon said. “It is no longer acceptable to put all
of the burden for financing social protection on labor,” he said. “We
must enlarge the base.”

One method being discussed is a so-called “social VAT,” which would
shift some of the financing of social programs to consumers by raising
value added tax rates on certain items. However, “the debate is not
limited to reform of the VAT,” Fillon said.

When the government meets with employers and labor unions in a
“crisis summit” on January 18, “all options are open. We should not
exclude any debate,” Fillon said. He added that France’s tax policy
“must favor the creation of productive jobs in our country.”

Fillon also urged reform of the training system for France’s
unemployed, noting that only about 500,000 are currently receiving
training for new jobs. The number of people in the system must be
increased and the program must be revamped to better reflect the needs
of the job market, he said.

–Paris bureau, +331-42-71-55-40; bwolfson@marketnews.com

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