29 May 2013

FT: Brussels steps up pressure on Hollande

“Our message to France is a very demanding message of putting a great accent on structural reforms that are needed. I think there is a growing consensus in France for those reforms”, said José Manuel Barroso, head of the European Commission.

The Commission’s list of recommendations for Paris, which it expects to be delivered in return for allowing France two extra years to meet its budget deficit targets, covered all the hard issues the socialist government faces: cutting public spending; restoring badly diminished competitiveness, opening up restricted markets, reforming the tax regime and loosening tight labour market regulations.

A major test will be pension reform. The commission slapped the government’s wrist for restoring the right of some workers to retire at 60 and said that changes enacted in 2010 by the previous government of Nicolas Sarkozy, which raised the minimum retirement age to 62, did not go far enough.

Mr Hollande has warned that it will require people “to work a little longer”, but he has yet to be specific on what that will entail. The government is proceeding cautiously as the issue is highly controversial in France – Mr Sarkozy’s relatively modest reform provoked weeks of street protests. The Commission specified tough medicine: an increase in the retirement age, longer contribution periods, less indexation of payments and a cut in exemptions. It said social security contributions should not be raised to help pay the bill – a route favoured by some on the left – because that would hit already high labour costs.

The Commission acknowledged the reforms already undertaken by the government to cut labour costs and loosen France’s rigid labour market regulation. But it criticised the government for raising the minimum wage and said it should “take further action”, including reducing social security contributions and overhauling the unemployment benefit system.

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