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Cablegate: The Attali Report: A New Path to Reform and Governing

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UNCLAS SECTION 01 OF 03 PARIS 000228

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TAGS: ECON EIND EINV ETRD ELAB PGOV FR
SUBJECT: THE ATTALI REPORT: A NEW PATH TO REFORM AND GOVERNING


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Summary
-------
1. (SBU) President Sarkozy on January 23 pledged to enact -- with
three exceptions -- recommendations for spurring economic growth
devised by a commission headed by Jacques Attali, former political
adviser to Socialist President Mitterrand. These proposals range
from boosting competition in the retail sector, to deregulating
certain professions, developing the digital, biotech, and
environmental technology sectors, creating a leaner state and
building high-tech green cities. The Attali Commission estimates
the measures, if implemented as a package, could raise potential
growth by one percentage point and reduce unemployment to 5 percent
by 2012. The Attali imprimatur on a series of mostly sensible
reform proposals is not inconsequential, and consensus from this
politically-disparate group provides a level of cover to further
reform efforts. But Attali's imperious style has rubbed politicians
of all stripes the wrong way, and his "take-it-or-leave-it" approach
to his commission's recommendations has fostered resentment within
Parliament -- including in Sarkozy's UMP party -- for
short-circuiting the political process. PM Fillon convoked an
intergovernmental seminar on February 1 to discuss implementation of
the Attali measures and promised that action would be taken "in
consultation with social partners, economic partners, and elected
officials." That, combined with opposition of vested interests -
the taxi drivers have already been on strike twice - will at the
very least slow Attali's ambitious timetable of implementation by
2009. End Summary.

"What you propose I shall carry out"...
-------------------------------------

2. (SBU) President Sarkozy appears invested in the economic reform
recommendations of the Attali Commission, established last May to
find ways to "unleash the economic growth that France is lacking."
On January 23 Sarkozy presented his comments to Attali and 42
members of a commission that included CEOS, economists, journalists
and foreign luminaries, such as former EU Competition Commissioner
Mario Monti. Commissioners who were present tell us Sarkozy cast
aside prepared remarks and spoke off the cuff for over an hour,
indicating to them that the president had internalized much of the
report's content.

3. (SBU) Sarkozy vowed to carry out "the best part" of the
Commission's proposals, centered on eight themes or "ambitions"
ranging from educational reform to development of the digital,
health, biotech, environment and services sectors (including a call
for nation-wide ADSL coverage by 2016 and appointment of a High
Commissioner for Digital Development, placed directly under the PM).
Among the more politically-challenging proposals are those that
call for further labor market liberalization, including changes to
union representation rules and a series of recommendations
liberalizing product and service markets.

Boosting Competition
- - - - - - - - - - -

4. (U) Attali pulled few punches in the introduction to his report,
saying "rent-seeking is triumphant" in France, as evidenced by the
country's "real estate fortunes, collusion among the privileged and
in recruitment of the elite." The commission's response is to boost
competition and overhaul France's most heavily-regulated service
sectors (including notaries, hair dressers, taxi drivers and
pharmacists). France has already had a taste of potential
opposition to such measures. Some 25,000 taxi drivers throughout
France staged one-day protests on January 30 and February 5 against
the Attali proposals to increase the number of taxis by issuing out
free licenses to new cab drivers.

5. (SBU) Largely absent from the report are recommendations
targeting what Attali terms "collusion among the privileged." For
example, an Attali commission member told us a proposal to do away
with France's "grand corps," the network of technocrats coming out
of France's premier universities who continue to dominate key
positions in government ministries and (still) business, had been
mooted. But Areva Chairman (and commission member) Anne
Lauvergeon's vigorous defense of the institution had helped to shoot
it down. (Comment: Indeed, Figaro economic editorialist Yves de
Kerdrel, also an Attali commission member, told us recently the
current reform efforts -- and to some extent the Attali
recommendations -- targeted important foundational change, but left
untouched France's economic superstructure, which was in equal need
of change. End comment.)

6. (SBU) The Attali report also calls for reinforcing France's
competitive environment by merging the Finance Ministry's
Directorate for Consumer Affairs, Anti-Fraud and Competition
(DGCCRF) into the independent Competition Council. The latter would
become France's sole authority on competition issues with its
authority reinforced. Competition Council President (and Attali
commission member) Bruno Lasserre told us he believes the move would

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send an important signal on the importance of open competition to
boosting consumer welfare. He noted, however, that Finance Minister
Lagarde opposes the idea and intimated that follow-through would be
difficult.

7. (U) Improving the competitiveness of SMEs is a central theme of
the Attali report. One proposal calls for a one-stop shop business
service for small and very small firms to facilitate adherence to
administrative procedures and complicated legislative requirements.
The report points out that going from 49 to 50 employees requires
compliance with an additional 34 new laws and regulations. The
Attali Commission estimates the cost of such procedures at 4 percent
of the average company's labor-related expenditures.

Liberalizing the Labor Market
- - - - - - - - - - - - - - -

8. (U) The Attali report proposes a number of measures to liberalize
France's labor market, some of which the Sarkozy government has
already set in motion. The report recommends the end of mandatory
retirement at 65. It also calls for new financing and
representation rules that would end the monopoly currently enjoyed
by France's five labor unions in negotiating national agreements on
labor law and financing of the French healthcare system. (Comment:
Sarkozy has tasked business and the unions to negotiate an agreement
on this issue by March 31. End comment.) In one of its more
controversial measures the Attali commission proposes liberalizing
immigration rules to encourage greater numbers of foreign workers.
While Sarkozy was silent on the recommendation in his remarks, the
president did highlight recommendations that encourage labor force
participation, noting in particular that early retirement schemes
were a thing of the past.

9. (U) Training and contract reform are key elements of the
Commission's report. In his remarks on the report Sarkozy claimed
victory for having encouraged unions and employers to negotiate an
agreement on labor contracts (reached January 13) making it easier
for employers to shed staff in return for higher severance pay and
easier access to benefits in between jobs. On training, the report
calls for paid training and a variety of adult education
initiatives, concluding that "(if) the appetite for risk is an
irreplaceable motor (of the economy), protecting those who take risk
is its condition."

Reform of the State
- - - - - - - - - -

10. (SBU) The report makes a number of recommendations for reducing
the size of the public sector, including doing away with redundant
levels of regional government. The Commission claims the moves
would help to reduce French public debt to 55% of GDP by 2012 (from
the current rate of 66%). The commission proposes 10 new
e-government programs (for hiring, payment of payroll taxes, etc)
that, it says, would save the GOF some 15 billion euros per year
(Comment: At nearly 40% of France's 2007 budget deficit, the figure
strains credibility. End comment.) Although we understand there was
consensus on the importance of putting France's fiscal house in
order, Commission members tell us the group could not agree on more
specific measures for cutting expenditures. Scrapping of the
existing employment guarantee for civil servants was proposed, but
Attali took it off the table at the last minute as politically
untenable. For his part, Sarkozy promised to continue reform of the
State, pointing to the 23,000 civil servant jobs that he said would
not be renewed this year.

Sarkozy's Exceptions
-------------------

11. (SBU) The intense fourth months of activity of the Attali
Commission were carefully orchestrated by Attali himself and Elysee
Chief of Staff, Claude Gueant. A member of the Commission informed
us that Attali and Gueant were in daily contact to ensure that only
those proposals "politically acceptable" to Sarkozy would make it
into the final report. As a result members of the Commission
self-censored certain proposals, particularly on tax issues.

12. (SBU) In part to add credibility to the process, three
"unacceptable" proposals made it into the report. Sarkozy rejected
a recommendation to scrap the precautionary principle, which has
been enshrined in the French Constitution since 2005. He could not
one day support sustainable development and the next do away with
the precautionary principle, a symbol of "vigilance, transparency
and responsibility." "I would not be understood or appear coherent."


13. (SBU) Sarkozy further discarded the idea of abolishing France's
99 departments. The French are simply "not ready," he said, and
such a move was not essential to achieving greater growth. Finally
Sarkozy said he did not oppose the principle of deregulating
France's pharmacies and limiting their current monopoly on
prescription and over-the-counter medicines. But as President he
had to take into account the "public service rendered by pharmacies"

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in small villages.

Next Steps
----------

14. (SBU) As suggested by the Attali Commission, the recommendations
would have to be fully implemented by June 2009 to have an impact by
2012. A first bill on the modernization of the economy will be
presented by Economy, Finance and Employment Minister Christine
Lagarde in the spring. The contents of the bill are not yet known,
though it is likely to incorporate a number of the Attali report
recommendations.

15. (SBU) PM Fillon held an inter-ministerial seminar on February 1
to strategize over the GOF's approach to implementing the Attali
report recommendations. His public remarks following the meeting
were conciliatory, saying recommendations would be put in place only
after consultations with relevant parties had taken place. Each
ministry would propose an "action plan" for implementing various
aspects of the report, and joint working groups between the National
Assembly and the government would be established to inform next
steps. For his part, President Sarkozy will host follow-up meetings
of the Commission every three months, with the first on announced
for March 29.

Parliament hostile on form rather than content
--------------------------------------------- -

16. (SBU) Fillon's olive branch comes in response to opposition from
French Parliamentarians of all parties, as much over form as over
content. The method of governing through Presidential-appointed
Commissions has irked many Parliamentarians who believe their role
as lawmakers has been diluted. Attali's insistence that his
recommendations be taken as a whole package, combined with his
personal attacks against two eminent members of Parliament, did
little to allay their concerns.

Comment
-------

17. (SBU) The optimistic view of most observers here is that only
half of the Attali recommendations will actually be implemented.
Strained relations with parliament over the report do not help its
prospects, and PM Fillon's focus on the consultative process could
push more difficult recommendations well over the horizon. Still,
the report represents a remarkable set of recommendations coming
from the former Mitterand advisor, and it provides a degree of
political cover for reforming almost all areas of the economy.
Despite considerable skepticism about the process, Sarkozy's
intention to reconvene the group every three months indicates the
commission's shelf-life will be longer than most. Nevertheless, with
the economy softening and municipal elections around the corner, we
expect the report's more controversial elements to take a back seat
to populist tub-thumping in the near term.
Stapleton

© Scoop Media

 
 
 
 
 
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