May 15, 2013 / 9:06 AM / in 5 years

France must present credible reform plan: EU's Barroso

PARIS (Reuters) - European Commission President Jose Manuel Barroso said on Wednesday France needed to present a credible program of structural economic reforms if the EU is to grant it two more years to bring its budget deficit down as promised.

Barroso, who was due to meet French President Francois Hollande in Brussels later in the day, was speaking as new data showed Europe’s second largest economy slipped into a shallow recession.

The extension of the deadline to cut the deficit below 3 percent of output would be approved “if France presents a credible reform program so that France can regain its competitiveness,” Barroso told Europe 1 radio.

On Tuesday, the French parliament adopted a partial reform of the country’s labor code, slightly easing rigid job protection rules as part of Hollande’s efforts to convince European partners that he is committed to revamping the economy.

Finance Minister Pierre Moscovici dismissed any idea that Hollande would go to Brussels with fresh plans for reforms, telling reporters on Monday that Paris had already spelt out reforms in a revised 2013-2017 budget plan last month.

But as preliminary data on Wednesday showed the French economy contracting by 0.2 percent in the first quarter, Barroso said that France needed to prove its commitment to pursue further structural reforms.

“The truth is that France has lost competitiveness over the past 20 years,” he said.

By contrast, Germany, Europe’s economic powerhouse, managed to return to growth in the first quarter after a sharp contraction at the end of 2013.

After the figures were released, Moscovici maintained the government’s forecast of GDP growth of 0.1 percent over the whole of 2013 and said the EU needed to rebalance its policies towards stimulating growth rather than austerity.

“All of this must push us to have a European policy which goes for growth,” he told reporters after a cabinet meeting just before Hollande left for Brussels.

Speculation of a cabinet reshuffle intensified on Tuesday after Foreign Minister Laurent Fabius, a former premier and finance minister, said the giant Finance Ministry needed a “boss” to better coordinate economic policy.

The remarks were aimed at Moscovici and left-wing firebrand industry minister Arnaud Montebourg, who have clashed publicly over budget cuts, industrial policy and a series of run-ins with potential foreign investors in France.

In another discordant note just as Hollande was trying to convince Brussels that he has a coherent economic strategy, Montebourg said in an interview published on Wednesday that France would fight off belt-tightening pressure.

“We are fighting to loosen the budgetary, monetary and legal belt: it’s this triple whammy that is choking growth,” he said in an interview with France’s Les Echos and Germany’s Handelsblatt.

In the same interview, which came on the day data showed Germany eked out growth in the first quarter, the ECB’s former chief economist Juergen Stark said Germany had already carried out painful reforms and France must accelerate its plans.

Barroso - whose Commission is perceived by French leftists as economically liberal - said there was a tendency in France to see new developments in the world as a threat rather than an opportunity and said that opposing globalization was like “spitting into the wind”.

Montebourg ran for Socialist presidential nomination in 2011 on a platform condemning unfettered free trade and advocating a policy of “delocalization”.

France entered a shallow recession in the first three months of the year as the economy contracted by 0.2 percent because of weak exports, investment and household spending.

The data - which marks France’s first recession in four years - is further bad news for the Socialist government after the number of jobless people hit an all-time high in March.

Reporting By Nicholas Vinocur and Ingrid Melander; editing by Mark John and Paul Taylor

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