07 July 2013

Bloomberg: Hollande urged to put his house in order, leave businesses alone

They clashed with Finance Minister Pierre Moscovici at a conference in Aix-en-Provence, in southern France, accusing the government of over-taxing business and zigzagging on economic policies, a charge the minister called “inelegant” and “facile". Business leaders urged Hollande to halt what they said were constant changes in regulations, and focus on shrinking state spending before electoral timetables constraint his ability to push through difficult and unpopular policy measures.

The remarks from the head of Europe’s third-biggest oil company encapsulate the frustration of business leaders as France enters the third year in which the economy has contracted or barely grown. Hollande, a Socialist who’s in the second of his five-year term, is struggling to balance their needs with demands from his own party to ease the pace of deficit cuts to protect citizens as joblessness rises to a record high.

After about €70 billion in tax increases over three years, French consumer spending has stalled and investment has collapsed. Decades of policies to shrink the work week and limit job cuts have eroded corporate profit margins, which last year fell to the lowest since 1985. Profit at French non-financial companies is less than 15 per cent of gross domestic product, compared with about 25 per cent in Germany.

Hollande’s own cabinet and Socialist Party have been resisting deficit-cutting efforts. Last week, Hollande fired Delphine Batho from her job as energy and environment minister after she criticised spending cuts in her department, calling his 2014 budget plans “bad". Concern that Hollande will seek higher taxes to shrink the budget deficit rather than the difficult task of cutting public spending has created a crisis of confidence among businesses, making them reluctant to invest. National statistics office Insee said last month that investment by non-financial companies will drop by 2.4 per cent this year, more than the 1.9 per cent decline in 2012.

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