Barroso urges ‘credible reforms’ in France in return for deficit grace period

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European Commission President José Manuel Barroso urged France on Wednesday (15 May) to push ahead faster with economic reforms in return for being granted two more years as promised to bring its budget deficit below the EU limit. The Commission will present more detailed recommendations to France on 29 May.

 

France needed to make up for 20 years of lost economic competitiveness and reduce what he called "the exorbitant weight of debt" on its economy, he told a joint news conference after talks with President François Hollande in Brussels.

In a gesture of support, Barroso also said the European Commission would not negotiate away France's "cultural exception" - a system of subsidies supporting its entertainment industry - in any future EU-US free trade agreement.

Both men said their top priority was restoring growth to Europe, on a day when new data showed that the eurozone and France, its second largest economy, slipped into a shallow recession in the first quarter.

"We share the same analysis," Barroso, standing next to Hollande, told journalists. "The two years [grace period], if approved, notably by EU member states, should be used to speed up structural reforms on which future growth depends."

Barroso said he sensed in Hollande a "genuine will" to push reforms but declined to say what recommendations the Commission would make on May 29 when it sets out its view on what France must achieve in return for the two-year deficit reprieve.

France conceded earlier this year the downturn meant it could not keep its promise of cutting the deficit to 3% of economic output this year. It is currently targeting 3.7% for 2013.

The government forecasts French debt will hit 93.6% of output this year from 90.2% last year and will keep growing next year. The Commission is even more downbeat, forecasting 94% this year and 96.2% in 2014.

A reformist President?

In Brussels, Hollande tried positioning himself as a reformist, and defended his year-old government's reform record, pointing to measures aimed at boosting corporate investment and making the labour market more flexible.

He flagged further reform goals this year including an overhaul of France’s costly pension system.

"The time given to us must be used for reforms that boost competitiveness and hence growth," the French president pledged, saying he had full respect for the EU institutions recommendations.

“It is not so much the budget deficit that needs corrected but the competitiveness gap that need to be filled,” Hollande said.

On Tuesday, parliament adopted a reform of the French labour code, slightly easing rigid job protection rules as part of Hollande's efforts to convince European partners that he is committed to revamping the economy.

But Barroso said France needed to prove its commitment to pursue further structural reforms. "The truth is that France has lost competitiveness over the past 20 years," he said.

Olli Rehn, the EU’s economic and finance commissioner, believes t it will be necessary to reform the labour market and pensions in order to "unlock the growth that France so badly needs.” He also expects France to open up its electricity and rail markets, which are currently dominated by former state monopolies EDF and SNCF, the energy and rail companies.

But these are likely to raise tensions in France, where trade unions are quick to take the streets in protest at deep economic and social reforms.

“What threatens us is the disaffection of the people,” Hollande warned, underscoring the difficulties in passing through legislation on social and economic matters.

Finance Minister Pierre Moscovici had this week dismissed any idea that Hollande would go to Brussels with fresh reform plans, telling reporters on Monday that Paris had already spelt out reforms in a revised 2013-2017 budget plan last month.

Timeline: 
  • 29 May: European Commission to spell out recommendations for the French economy.
  • 21 June: ECOFIN Council to vote on Commission recommendation for two-year reprieve for France to meet its deficit target
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