France faces stagnant growth, reforms vital

27th June 2007, Comments 0 comments

PARIS, June 27, 2007 (AFP) - France faces two years of stagnant economic momentum and must deepen structural reform by curbing wage growth, scaling back job protection and ensuring that older people stay on the job, the OECD said Wednesday.

PARIS, June 27, 2007 (AFP) - France faces two years of stagnant economic momentum and must deepen structural reform by curbing wage growth, scaling back job protection and ensuring that older people stay on the job, the OECD said Wednesday.

The Organisation for Economic Cooperation and Development warned French authorities that measures designed to shield certain jobs and industries from competition would prove to be costly and ineffective.

The OECD report on France was issued as newly elected French President Nicolas Sarkozy was preparing a campaign to galvanize the economy through corporate and personal tax breaks and incentives.

But the report said: "What is needed is to protect people, rather than existing jobs, and to promote work opportunites.

"Nor can demand-based policies to stimulate the economy solve fundamental supply-side deficiencies.

"Moreover, they undermine public finances."

Sarkozy's proposed remedies have already caused concern within the European Union's executive commission, where it is feared they could hamper France's capacity to hold its public deficit to agreed-upon EU limits.

The OECD said that while the French economy had been on the mend since 2001-2002, "the recovery has been neither strong nor steady" and in 2007 "growth is unlikely to be much higher than in 2006."

Economic momentum perked up 2.1 percent in 2006 from 1.2 percent in 2005 but is projected to stagnate at 2.2 percent this year and next.

Unemployment is nonetheless seen falling from 9.0 percent in 2006 to 8.4 percent in 2007 and 8.0 percent in 2008,

The report noted that while France had indeed implemented reforms aimed at improving public finances in the last few years, "vigilance cannot be relaxed and further measures are needed."

"A feeling of pessimsim and insecurity has been sustained by persistently high unemployment, often leading to social exclusion, a problem for which the educational system struggles to find solutions."

France has nonetheless managed to do a commendable job in combatting the incidence of poverty, which according to the OECD is lower than that in most large European countries and the United States when measured as a share of the population living in households with per capita income below a certain percentage of the median, usually a 60 percent threshold in Europe.

The OECD estimated that in 2005 the French poverty rate came to about 12.5 percent compared to roughly 24 percent in the United States in 2003.

In its specific recommendations the report called for a slower rate of growth in the French minumum wage, which it said was the highest in the 30 industrialised members of the OECD and is earned by about 15 percent of the workforce.

The gross monthly minimum wage in France, according to the national statistics insitute INSEE, was 1,254 euros (1,684 dollars) for between 35-37 hours of work a week in 2006.

The OECD argued that increasing the minumum wage was not a "good instrument" for fighting poverty and called for an earned income tax credit targeting poor families.

It said the minimum wage should grow "at much slower rates in the future," rising no faster than productivity gains of low-skilled workers.

The report also called for an "overhaul" in French employment protection measures through a single contract under which protection would increase in line with experience in the company.

It added that "the judgment as to the economic relevance of a decision to dismiss one or several employees (should be left) to the employer alone."

Elsewhere it recommended that incentives to retire early should be scrapped, adding that "two decades of policies have encouraged workers to retire early in the unfounded belief that this might boost youth unemployment."

The report, finally, said university admission should be based on selection and that fees should be "significantly increased."

"High school graduates should not be allowed to enroll in free courses which the university considers them highly unlikely to complete successfully."


Copyright AFP

SUbject: French news

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