France seeks German support for economic reforms
- 29th September 2014
- Business & Economy
France is hoping that German support will help it implement economic reforms.
Europe has faced its economic struggles since the financial crisis, and France has become seen as one of the weaker links in the eurozone chain. But its government is working hard to implement economic reforms and to do that, it’s looking to Germany for support.
French prime minister Manuel Valls was in Berlin two weeks ago to hold talks with Angela Merkel regarding the two countries’ economic fortunes.
Tensions between Paris and Berlin have been strained for a while, as Germany has become increasingly frustrated with France’s inability to meet deficit reduction targets – but none of this was on show when the two politicians spoke at a press conference after their private discussions.
The German leader spoke positively of the proposed reforms, but insisted that it would be up to EU authorities and not Berlin to determine success.
“The prime minister told me about his impressive, ambitious reform programme,” Chancellor Merkel said. “I see the great efforts, and the evaluation of these will be up to the European Commission.”
France has come under fire in recent weeks as critics have argued that Paris’ reforms do not go far enough to give the economy the kickstart it needs.
But at the same time, French consumers and unions have opposed several of these proposals.
The next few weeks will see Mr Valls announce spending cuts to the tune of €50 billion, with pensions and healthcare expected to be among the casualties. Yet a previous attempt at reform was criticised in April, as a package of tax cuts and labour reforms to cut the cost of doing business met with a negative response from opposition politicians.
That came on the back of the “Responsibility Pact” unveiled in January, which included a raft of tax cuts for businesses worth €40 billion in exchange for promises that they will create 500,000 jobs in the next three years. But members of the French cabinet even went as far as criticising these policy measures openly and indeed, in August the whole government resigned over economic policy.
It is clear that the new cabinet are fully behind the reforms, and Mr Valls went out of his way this week to convince Germany that major changes will be pushed through and followed up.
There has been no doubt that action needs to be taken to deal with France’s economic problems.
Growth in France has averaged 0.8 per cent in the past three years – half the rate in Germany – and unemployment stands at 10.4 per cent.
By contrast, Germany’s jobless rate is around half that. In June, the International Monetary Fund said that the gap between France and its neighbours will only get bigger unless new reforms are brought in – as it downgraded its economic forecast again to predict a 0.2 per cent contraction this year.
France’s high labour costs and complex employment regulation are unlikely to have helped, but changes to these rules have been met with harsh criticism by many groups within the nation’s borders.
Mr Valls assured Germans this week that France would uphold its end of the bargain and push its reform programmes through, and with a new cabinet it seems they stand a good chance of being approved. Implementing them successfully is the next challenge.
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