France is lagging behind other European countries in reforming its economy and needs to take comprehensive steps to restore its competitiveness, a stark report from the OECD, the club of rich countries, has warned.
In one of the most wide-ranging critiques by an international institution of France’s competitive weaknesses, the 87-page report sent a clear message to President François Hollande’s Socialist government that it has not done enough to overhaul Europe’s second-largest economy.
The Paris-based organisation said France had seen “no significant improvement” in its external position since the onset of the financial crisis in 2008.
“Over several years, many European countries have accelerated the adoption and implementation of essential reforms. This adjustment has not happened in France,” the report said.
Driving home the message, Angel Gurría, OECD secretary-general, wrote in a preface: “The efforts under way [by the government] should be written into a strategy of more comprehensive and coherent, fundamental reforms to increase productivity and restore the competitiveness of the French productive fabric.”
Mr Hollande, struggling against rising opposition from both left and right to his administration, insists that reforms he has undertaken to reduce the budget deficit, lower France’s high labour costs, loosen its restricted labour market and tackle its pension system deficit are starting to bear fruit.
But the report listed a catalogue of remaining structural problems that contributed to France’s greater loss of global market share than that seen by other big economies since 2000.
It cited France’s high minimum labour costs (80 per cent above the OECD average), high cost of public services (27.4 per cent of gross domestic product), heavy tax burden on employment (50 per cent of wage costs) and millefeuille of central and local government (including 36,700 municipalities) as among the factors holding back French competitiveness.
It said earnings per head in France had grown slower than in other “advanced” OECD countries, economic growth had been below the OECD average and levels of employment, especially among young and older workers, were damagingly low.
The report acknowledged the government’s move to give companies a €20bn tax break to lower labour costs. But it said this only dealt with half of the gap between the “tax wedge” in France – the difference between labour costs to the employer and the employee’s take-home pay – and the OECD average.
On pensions, the report said the government should consider “more ambitious measures focused on spending cuts”. It specifically called for lower indexation of pensions, more rapid introduction of longer contribution periods and a higher statutory retirement age – all measures rejected by Mr Hollande in his pensions reform earlier this year.
The OECD added that the “corner stone” for improving growth and competitiveness was further reform of the labour market, including more flexibility in contract conditions and moderation of minimum wage costs.
It also called for liberalisation of product and service markets, especially in areas such as energy, retail and transport, and an overhaul of training and education.
Get alerts on French competitiveness when a new story is published