IMF worries about French competitiveness

IMF worries about French competitiveness

The International Monetary Fund’s latest report on France includes some tough language on what it sees as the country’s competitiveness problem:

The growth outlook for France is also clouded by a significant loss of competitiveness relative to its trading partners. This competitiveness gap is reflected not only in a deteriorating export performance, but also in the low profit margins of enterprises, which constrain their capacity to invest, innovate and create jobs. The loss of competitiveness predates the crisis, but risks becoming even more severe if the French economy does not adapt along with its major trading partners in Europe, notably Italy and Spain which, following Germany, are now engaged in deep reforms of their labor markets and services sectors.

As Reuters reports here, the government of Francois Hollande is bracing for even more criticism on competitiveness from the man appointed to investigate what’s holding back French business:

French industrialist Louis Gallois called for a patriotic effort to reverse declining competitiveness via shock therapy as he handed in a review on Monday which the Socialist government commissioned and is now under pressure to heed.

Gallois is prescribing slashing 30 billion euros ($38.54 billion) off payroll taxes and loosening labor laws to reverse a long decline in industrial competitiveness that has eaten away at exports and bled factory jobs.

The widely leaked recommendations have set frustrated industry heads against a government reluctant to shift part of the tax burden from employers to households which are already struggling with rampant unemployment and an austerity budget.

It would be interesting to know how French officialdom reacts to these very different sources of criticism. My guess is that the IMF’s influence would be minimal–even with former French finance minister Christine Lagarde at the helm–while the report of a high-level domestic commission could be quite important.