IMF to France: work harder on labour reform 02/11/2006 00:00

WASHINGTON, Nov 1, 2006 (AFP) - The IMF on Wednesday urged the French government to do a better job of selling much-needed labour reforms to lift one of Europe's biggest economies out of the doldrums.

In an annual report, the International Monetary Fund notched up its 2006 growth forecast for France to 2.5 percent, from 2.4 percent given in September.

For 2007, the IMF sees French gross domestic product (GDP) expanding by 2.3 percent.

France has benefited from a recovery in domestic demand this year and growth in exports, as neighbouring economies such as Germany have improved.

"Our overall view of France's recent economic performance and policies is positive," Alessandro Leipold, the IMF mission chief for France, told reporters on a conference call.

"This has much to do with the reduction on the fiscal deficit that we have observed from 2004 onwards, and also to reforms in labour and public markets which have increased the growth potential of the economy," he said.

But the IMF also noted that over the past five years, French GDP per capita has slipped from 12th place in global rankings to 16th, reflecting a deeper malaise in the eurozone's second-largest economy.

The root cause of that malaise, according to the IMF, is a hidebound labour market that keeps unemployment high by cosseting those already in jobs while making it hard for the jobless to find work.

"Noting that France has changed more than is commonly perceived, (IMF) directors supported the authorities' emphasis on building consensus, which has been instrumental in promoting reform," the annual review said.

"However, much remains to be done."

The Fund noted that the government in April withdrew a new youth labour contract in the face of nationwide protests.

Consultation by the government remains key to winning over the public, the IMF said.

"Attempts to short-circuit this process have met with failure," Leipold said. "There is an encouragement to continue along these lines (of dialogue)."

The IMF warned that increases to France's minimum wage had created a "vicious circle" for a government that is also trying to bring down labour costs.

A bigger gap between the minimum and median wages, and between the minimum wage and unemployment benefits, would fuel the incentive for the jobless to find work.

"An important step to boost job creation will be to reduce the legal uncertainty surrounding permanent labour contracts" such as the youth labour reform law, the report said.

The IMF also urged the government "to maintain the steady pace of fiscal consolidation until the general government budget is balanced".

Along with Germany, France has repeatedly violated European Union rules that require eurozone economies to keep their public deficits under three percent of GDP.

The European Commission said in June that there was a significant risk that the French deficit could again breach the ceiling this year.

The government, however, says it is on course to budget its balance by 2010, a goal commended by the IMF.

But the review added: "Directors were of the view that stronger adjustment in 2007 would be desirable to maintain an evenly-paced path toward balance."

The Fund also urged France to "contribute actively within the EU" to revive the World Trade Organisation's troubled Doha round of liberalisation talks.

French-led reluctance within the EU to cut the bloc's generous farm subsidies is blamed by the United States and many developing countries for pushing the Doha talks into deadlock.

Copyright AFP

Subject: French news