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UPDATE 2-French central bank head backs Hollande reforms, urges speed
January 16, 2014 / 9:07 AM / 4 years ago

UPDATE 2-French central bank head backs Hollande reforms, urges speed

* BoF chief says reform drive can create 1 mln jobs

* Details of Hollande’s reform drive remain vague (Adds industry minister, official, economist comments)

By Leigh Thomas

PARIS, Jan 16 (Reuters) - France can revive its competitiveness and growth if it quickly presses ahead with reforms proposed by President Francois Hollande, its central bank governor said on Thursday.

The Socialist leader pledged on Tuesday to cut the charges companies pay to fund family benefits, easing their tax burden by 30 billion euros ($41 billion) by 2017 at the latest, provided they ramp up hiring.

The plan drew a cautious welcome from companies, wary of getting tied down with specific hiring targets, and Hollande has not specified how the tax break will be financed. The government will hold a series of meetings with business leaders to negotiate how the changes will be implemented.

“The pact proposed by the president is exactly what is needed to get growth going,” Bank of France Governor Christian Noyer said on Europe 1 radio.

“It has got to be done quickly, the decisions that have been taken need to be implemented. We can’t be reluctant, we’ve got to be bold and we’ve got to trust companies, investors and entrepreneurs.”

Noyer, a member of the European Central Bank’s governing council, said the reform could bear fruit as soon as this year and could create or save at least one million jobs.

Industry Minister Arnaud Montebourg went further, saying Hollande’s reforms could generate 1.8 million jobs by 2018, cutting the unemployment rate to about 7 percent from nearly 11 percent now.

But many key details remain to be hammered out in the coming months, a process made all the more difficult by campaigning for municipal elections in March, in which Hollande’s Socialist Party risks suffering losses.

Hollande said the changes would be accompanied by at least 50 billion euros in spending cuts over the 2015-1017 period. His aides have said only 49 billion euros in cuts have been confirmed for now and that more will have to be found.

“We will probably have to go further than 50 billion euros in spending cuts and 30 billion euros in cuts on corporate charges,” the head of French insurance giant AXA, Henri de Castries, said in an interview with Le Figaro newspaper.

“But the volume is large enough that the priority is now the pace and the application of the pact,” he added.

One senior government official said it was too early to say how much had to be drummed up in new savings, because it remained to be seen how an existing corporate tax credit scheme worth 20 billion euros annually would be merged with the labour cost cuts.

With many details remaining to be hammered out, Deutsche Bank economist Gilles Moec said that the biggest news from Hollande’s announcement was that he had opened the door to a confidence vote on his plans.

“He has forced the Socialist Party and the Greens to confirm they still belong to the majority and that they agree with this stance,” Moec said.

Hollande pitched his reform drive as an embrace of supply-side economics aimed at making companies more competitive at a time when French firms have the lowest profitability in Europe, restraining their room to invest and create jobs.

In the latest sign of weakness in the corporate sector, business bankruptcies reached a record level last year of more than 63,000, according to a study by consultants Altares, cited in business newspaper Les Echos. ($1 = 0.7356 euros) (Reporting by Leigh Thomas; editing by Mark Trevelyan)

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