French Economy Minister Seeks to Buy Time with Deregulation

Emmanuel Macron hopes reforms will convince the EU to give France more time for deficit reduction.

French economy minister Emmanuel Macron, unveiled a series of economic reforms on Wednesday that are meant to convince the country’s European Union partners it is committed to liberalization even as it fails to meet the bloc’s budget rules this year.

On the day France submitted its budget to Brussels for review, Macron presented a deregulation bill that would allow more stores to open on Sundays, free up competition in intercity bus transport and loosen rules for regulated professions such as chemists and notaries.

“The weight of laws and rules has become unbearable,” Macron told a news conference. “We need to simplify, drastically.”

Buying time

Macron, a former investment banker, served as President François Hollande’s personal economic advisor before he replaced the far-leftist Arnaud Montebourg as economy minister in August. Montebourg lost his job after describing France’s efforts to rein in its deficit spending as “financial absurdity.”

Whether Macron can buy time for fiscal consolidation with his liberal reforms remains to be seen.

Earlier this month, the government rejected deeper austerity, prompting criticism is was reneging on its commitments. The European Commission could fine France for failing to bring its deficit in line with the 3 percent treaty limit. It had previously promised to reduce its shortfall by next year, a deadline that had already been extended from 2013.

The French economy expanded just .2 percent last year after zero growth in 2012, the year Socialist Party leader Hollande was elected president. The national statistics agency forecasts .7 percent growth for 2014 while the government had based its fiscal plans on 1 percent growth.

Labor costs

Absent from Macron’s reform plans were any proposals to reduce France’s high labor costs which, at €34 per hour, they far exceed the European average of €23. They are particularly burdensome because nonwage costs, including high social contributions for employers, make up a third of the average salary.

France’s 34.4 percent corporate tax rate is also more than twice as high as Germany’s 15.8 percent rate.