"Competitive shock" needed in France

PARIS: Major firms in France may benefit from the introduction of a "competitive shock" into the economy and social system, which is currently hampering growth, leading executives have argued.

The country's trade deficit rose to €70bn last year, and Coe Rexecode, the insights provider, estimated its share of exports among the 17 nations in the eurozone has fallen from 16% in 2000 to 13% today.

During the same timeframe, the gross operating profits of French enterprises outside the financial services category has also contracted by 6.2%, limiting the corporate ability to invest.

"There is a massive problem of confidence among the heads of our companies ... I believe we must have a 'competitiveness shock' to help the exposed sectors," said Louis Gallois, former head of EADS, the aerospace firm, the Financial Times reported.

"French industry is squeezed between top-of-the-range Germany ... and emerging markets, or countries like Spain that are capable of developing costs much lower than ours."

A key recommendation made by Gallois was that between €30bn and €50bn now contributed to social welfare schemes by employers and employees should be drawn from VAT, taxes on pensions and other direct taxes instead, freeing up funds.

More broadly, hourly labour rates in France come in at €34.20, versus €30.10 in Germany, €26.80 in Italy and €20.60 in Italy. The "Code du Travail", a 3,200-page document detailing employment law, is seen as equally restrictive on business practice.

"There is room for a win-win agreement among social partners," Jean-Pierre Clamadieu, CEO of Solvay, the chemicals group, said. "The employment question and the necessary flexibility so that companies can adapt should be discussed. An important issue is to simplify proceedings to reduce staff."

Unemployment stands at roughly 10% in France at present. Peugeot Citroen, the carmaker, also intends to cut at least 8,000 jobs, and Air France-KLM, the air carrier, is aiming to slash its headcount by 5,000.

"The two pillars that definitively need to be reformed are the ability to react quickly to adjust to the world and demand, whether up or down, and the ability to train employees so that they can change [roles or employers]," Clara Gaymard, head of General Electric's operations in France, said.

One major policy the French government wishes to introduce is a 75% marginal tax rate on individuals earning over €1m. It has outlined a further goal of collecting €7.2bn in additional taxes, largely from levies on the affluent, banks and energy firms.

"The most important issue today is to reduce taxes on labor," Pierre-Andre de Chalendar, CEO of Cie de Saint-Gobain, the conglomerate, said. "I think there is a consensus on that, including among a lot of people in the government. The first measures that have been taken before the full plan aren't going in the right direction."

Data sourced from Financial Times/Bloomberg; additional content by Warc staff, 11 July 2012

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