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Jan 15, 2014

French companies, unions question Hollande's proposed spending, job cuts

But European Commission said plan will make businesses more competitive
By Mark John
    
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PARIS (Reuters) — French businesses raised doubts on Wednesday over Socialist President Francois Hollande's plan for public spending cuts and structural reform to revive the euro zone's second largest economy.

His allies hailed a new "social democrat" vision for France, but unions said they were worried about job cuts to the army of state sector workers and far-left politicians accused him of a sell-out as he moved towards the political centre.

Hollande, who has not denied magazine allegations last week of an affair with actress, deflected questions on his personal life at a marathon news conference on Tuesday unveiling plans to find at least 50 billion euros of spending cuts between 2015-2017 and cut corporate charges by 30 billion euros.

The European Commission said the moves should make French business more competitive. While France's main employers' group broadly welcomed the plan, it rejected his call for companies to commit to specific targets for new hires.

"What exactly is the magnitude of the structural reforms he announced? We need to have a clarification," said Medef president Pierre Gattaz, who has suggested the French private sector could create an extra one million jobs if freed from excessive charges.

Critics say French public spending at around 57 per cent of national output — some 12 points more than in neighbouring Germany — is too high while the national audit office has said that French debt at 93.4 per cent of GDP is "in the danger zone".

But Hollande's plans prompted an onslaught of criticism from France's hard left and even from the far-right National Front's Marine Le Pen, who said he converted to "ultra-liberal" economics.

"It's called social democracy ... and social democracy is on the left," Finance Minister Pierre Moscovici, a centrist leader in Hollande's Socialist Party, told LCI television.

Social democracy is the term used to describe the goal of creating welfare structures and social solidarity within a capitalist economy. In Europe, it is employed most notably in Germany in the name of the main party of the left.

Deep spending cuts

While Hollande largely succeeded in ensuring domestic headlines focused on his economic plans rather than private life, the reaction among reform advocates was more mitigated.

The planned cuts to spending amount to some 18 billion euros ($26.8 billion CAD) a year for 2015, 2016, and 2017 — little higher than an existing rhythm set to shave 15 billion euros ($22.3 billion CAD) this year.

Moreover, Hollande said the 30-billion-euro tax reduction to companies by alleviating them of the need to pay family benefit contributions by 2017 could be partly counter-financed by re-diverting 20 billion euros of existing tax credits.

"So the net win is only of the order of 10 billion euros whereas we were after 80," said Gattaz.

Hollande's suggestion that France could find savings by rationalizing its multi-layered system of local government also raised concerns among trade unions over the fate of some 5.3 million "fonctionnaire" public sector workers.

Budget Minister Bernard Cazeneuve said the government would not repeat an attrition policy tried out by conservative ex-leader Nicolas Sarkozy to replace only one out of two departing state sector workers.

However the moderate CFDT union that has backed Hollande's reforms up till now warned in a statement that it would watch closely any impact on staffing levels.

Independent economists welcomed Hollande's recognition of the need to cut spending but questioned whether the volume of cuts will be delivered and sufficient to mark a change.

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