BRUSSELS/PARIS: France must this year start to reform its pension system, rein in public spending and further cut labour costs in return for getting two more years to bring its budget deficit back in line, the European Commission said yesterday.
France must also simplify its tax system to help companies, and should use all windfall gains for deficit reduction, the Commission, the European Union’s executive body, said in its annual assessment of EU economies.
“The pension system will still face large deficits by 2020 and new policy measures are urgently needed to remedy this situation,” the Commission said.
Possible measures included adapting indexation rules, increasing the statutory retirement age and full-pension contribution period, “while avoiding an increase in employers’ social contributions”, the Commission said.
The Commission said it expected France’s unemployment rate to be 10.6 percent this year and keep increasing to reach 10.9 percent in 2014 — contrary to the government’s stated promise of halting the rising trend by the end of this year.
The EU executive wants France to cut its headline deficit to 3.9 percent of output in 2013, 3.6 percent in 2014 and 2.8 percent in 2015.
“In particular, it is crucial that France’s public spending grows significantly less rapidly than potential Gross Domestic Product as improvements in the structural deficit have so far been mainly revenue-based,” it said.
European Commission President Jose Manuel Barroso told a news conference the message to France was “very demanding”. “The extra time should be used wisely to address France’s failing competitiveness ... I believe there is a growing consensus now in France about the need for those reforms,” he added.
French officials say that Francois Hollande’s government has already put reforms in motion and will continue at its own rhythm, which includes seeking deals between unions and employers to try and reach as broad a consensus as possible and avoid possible street protests.
Reuters
