French PM, on charm offensive with business, says to speed up reforms

JOUY-EN-JOSAS France Wed Aug 27, 2014 4:06pm EDT

1 of 3. French President Francois Hollande (L) accompanies Finance Minister Michel Sapin (C) and newly-named Economy Minister Emmanuel Macron following the weekly cabinet meeting after a government reshuffle, at the Elysee Palace in Paris, August 27, 2014.

Credit: Reuters/Philippe Wojazer

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JOUY-EN-JOSAS France (Reuters) - French Prime Minister Manuel Valls launched a charm offensive on the corporate world on Wednesday, promising to speed reforms aimed at freeing up the economy and to make tens of billions of euros in tax cuts.

Valls declared that he "loves business" in what was the most pro-entrepreneur speech yet from the Socialist government of President Francois Hollande - who in his election campaign described finance as his enemy. The head of France's employers' group said the comments could mark a new era.

Responding to renewed pressure from the European Commission for France to pursue reforms, Valls said the government would try to lower the public deficit but warned that too much budget rigor could thwart efforts to revive economic growth.

Two days after Hollande evicted maverick economy minister Arnaud Montebourg in a government reshuffle aimed at re-affirming increasingly pro-business policies, Valls tried to reassure corporate leaders who had been often irritated by Montebourg's interventionism and mixed government messages.

"Entrepreneurs, France needs you ... I love business, I love business," Valls said to applause.

"The path back to growth is in supporting business," Valls said, reaffirming a policy U-turn already announced by Hollande at the start of the year with about 40 billion euros ($53 billion) of corporate tax cuts and 50 billion euros of public spending cuts to 2017.

The Socialist party's left wing has decried that policy, while business leaders - who gave Valls a standing ovation - said they needed more proof of it being implemented.

"I have a message for the new government: dare to carry out reform," said Pierre Gattaz, president of the Medef employers' federation. Referring to Valls's speech, he said: "Perhaps people will say there was a 'before" and an 'after'."

EU PRESSURE

The French economy has failed to grow for two quarters in a row and, for all the rhetoric, data showed on Wednesday that morale in the manufacturing industry fell in August - evidence of a lack of confidence among investors in Hollande.

Separately, the jobless number reached yet another record in July. The Labor Ministry said the total in mainland France rose by 26,100 to 3,424,400, up 0.8 percent over one month and 4.3 percent over one year.

Paris has admitted it will not meet its deficit target this year and is unlikely to do so in 2015 but Hollande is hoping for leeway from EU officials in Brussels amid a debate in Europe about how to stimulate growth and reduce debts.

Earlier the European Commission urged Paris to speed up its reform plan, showing it was keeping up the pressure on Hollande after this week's government crisis, provoked by three ministers who rejected budgetary rigor. All three ministers were removed.

"It is urgent for France but not just France, for the other countries which are in a similar situation to speed up the work they are doing, the structural reforms," said a spokesman for EU Economic Commissioner Jyrki Katainen.

The spokesman said it was important France had confirmed its intention to press ahead with reforms and said the Commission was willing to help in its efforts.

RESISTANCE

Economists have welcomed the appointment of former banker Emmanuel Macron to replace Montebourg, seen as a sign that ‚ÄéHollande will press ahead with a pro-business policy.

While some note the risk of increased resistance to future reform moves from the left wing of Hollande's Socialist Party, most say they expect fewer internal government divisions.

Deutsche Bank economist Gilles Moec said the issue was one of implementation - with scope for plenty of wrangling ahead.

"The message from Paris is likely to be clearer, but the implementation of any further reform is actually going to be more difficult," he said in a note. "The reshuffle was one act - the first of many, we think - in what is likely to be a crippling succession war within the French left."

Valls, however, assured business leaders he was confident the government would get a majority in parliament to vote for the 2015 budget and reforms despite opposition from rebel lawmakers.

In two years, Hollande has carried out reforms of France's generous pension system and complex labor market which critics argue go only part of the way to reviving the euro zone second largest economy.

Macron will take over preparation of a law promised for September to cut red tape for businesses and open up closed professions such as pharmacists and solicitors.

This is a longstanding demand from Brussels and one Hollande hopes will help convince EU peers he is carrying out structural reforms - a condition to win more reprieve on EU fiscal targets.

Hollande also promised last week a plan to boost the depressed housing sector. He gave no details for the plan, due to be spelt out later this week, beyond saying it would tackle taxation, regulatory and funding issues.

Hollande has also confirmed the government plans to reform welfare benefits and income tax rules to give poorer households a tax break on a similar scale to one struck down by the constitutional court earlier this month.

Going beyond the first labor reform, the government is also looking into reviewing rules that oblige companies with a certain number of staff to have works councils and other rules, which business leaders say deter many from hiring.

(Additional reporting by Martin Santa in Brussels and Maya Nikolaeva in Paris; writing by Mark John and Ingrid Melander; editing by Anna Willard and David Stamp)

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