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France: Further Structural Reforms Key To Recovery

OECD – Paris, 21 May 2010

France: Further structural reforms key to a stronger recovery, says OECD’s Gurría

France is well-placed to recover strongly from the economic crisis providing it strengthens its public finances by cutting spending and reforming its pension system, OECD Secretary-General Angel Gurría will tell members of the Attali Commission for the liberation of growth at a hearing in Paris today.

Among the advantages France can build on are its high productivity rates, strong infrastructure and good public services, Mr. Gurría will say. But further structural reforms are needed. “Reforming the labour market is vital”, he will assert, according to the text of his prepared remarks. “In order to use labour resources more effectively, labour costs must be cut and employment rates among older workers and less-qualified young people must be raised”.

The Attali Commission was set up by French President Nicolas Sarkozy soon after his election in 2007 to find ways to boost France’s economic growth rate. The OECD was invited to contribute its analysis and recommendations on the French economy and Mr Gurría presented the OECD’s first report to the Commission in November 2007.

At Friday’s hearing, Mr Gurría will present a new OECD report to the Commission, plus a further study entitled “Better Regulation in France” which analyses progress made in improving the quality of France’s regulatory framework since 2004.

Mr. Gurria will also urge the need for a medium-term roadmap for reducing the government deficit. This is very much in line with measures announced yesterday by President Sarkozy, which include a constitutional reform to put a ceiling on deficits, cuts in spending, the elimination of some tax expenditures and loopholes, and other reforms to ensure a stricter monitoring of public budgets. These measures are very welcome.

Steps to reduce France’s public deficit will need to be taken carefully, given the fragility of the global economy, Mr. Gurría will warn. A balanced package to achieve fiscal consolidation will need to incorporate measures to both increase revenues and to cut spending.

“To boost fiscal revenues, the government will need to look at areas where the impact on economic growth is smallest, such as reducing tax expenditures and raising taxes on property, on goods and services that benefit from lower rates of VAT and on carbon emissions”, the OECD report says.

Putting in place strict budgetary rules and creating an independent council to oversee them will enhance the credibility of the budget process, the report says.

Mr. Gurría will also emphasise the urgent need for progress in negotiations with employers and labour unions on pension reform, notably with a view to extending the average number of years worked over a lifetime.

The “Better Regulation in France” report underlines that regulatory inflation needs to be brought under control as it has implications for economic competitiveness and the development of small and innovative businesses. Recognising recent progress, it recommends reinforcing institutional capacities to support regulatory reform. It also calls for greater consultation with stakeholders and urges the strengthening of the impact assessment of new laws.

“Poor regulation acts as a drag on the economy. If France is to boost its growth prospects, it is essential that it has a more efficient regulatory framework”, Mr Gurria will tell the Commission. He will also emphasize the potential benefits of regulatory reform as a way to unleash the potential of the French economy. Innovative SMEs are the backbone of the knowledge economy and of the forthcoming “green economy” opportunities. “Inappropriate regulation hampers firm creation and growth, significantly reducing entrepreneurship, innovation and ultimately, living standards”.

ENDS

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