‘France needs you. I love companies,’ prime minister tells employers' union

PARIS — France's Socialist Prime Minister declared his love for companies and ally Germany Wednesday in a speech that earned him rapturous applause from the country's business elite following a damaging political crisis.

Speaking to a gathering of the country's main MEDEF employers' union, Manuel Valls sought to put to bed weekend comments made by his former economy minister slamming France's economic direction and German-led austerity measures, as he consolidates his government's pro-business stance. 

 "France needs you," he told the gathering to much clapping. "I love companies!"

"I know it is the custom to oppose the [political] left and the business world, it's an old tune. But I deeply believe that our country needs to shake off this position, these role-plays that we are so used to," he said. "It has made us lose too much time and our country is dying because of these positions."

Valls' comments came just two days after he tendered his government's resignation in a shock move sparked when Arnaud Montebourg — the outspoken former economy minister who is on the left of the ruling Socialist Party — stepped out of line and made the controversial weekend comments.

These cost Montebourg his job, and he was replaced in an emergency reshuffle by former Rothschild banker Emmanuel Macron, who was economic adviser to President Francois Hollande and one of the architects of the country's move towards a more pro-business outlook.

Valls' speech drew immediate comparisons to former British prime minister Tony Blair, whose centre-left New Labour Party also cosied up to the business world.

"I am well versed in the ideological evolution of Socialist parties over the past two decades, and I can tell you that it's a cut-and-paste of the type of speeches that Tony Blair made in the 1990s in England," Laurent Baumel, a Socialist lawmaker, told BFMTV. "It's an ideological proposal to break with everything we on the left have believed in for decades." 

'Absurd face-to-face' 

But as France desperately struggles to emerge from the crisis, Hollande is pinning his hopes on a package of tax breaks for business funded by public spending cuts to kickstart growth again.

The so-called Responsibility Pact aims to cut social charges for companies in return for the promised creation of 500,000 jobs.

But with the current emphasis on austerity within Europe, France has vowed to counterbalance that with 50 billion euros ($66 billion) in cuts to public spending.

The country is battered by a jobless rate of more than 10 per cent, high taxes and a budget deficit that stubbornly refuses to come down to the European Union (EU) ceiling of 3 per cent of the gross domestic product (GDP).

Adding fuel to the fire, France's labour ministry announced Wednesday that unemployment hit a new high in July, with 3.424 million people now out of work — the ninth consecutive monthly rise.

Valls — who was appointed in March after the Socialists suffered a drubbing in local polls — has strongly defended the Responsibility Pact as the best way to drag France out of the crisis.

But those on the left of the party argue that public spending should increase instead of being reduced and slam austerity policies advocated by Germany.

Montebourg himself criticised France's European ally in his weekend comments, arguing Germany was "trapped in an austerity policy that it imposed across Europe" — remarks that Valls pointedly sought to smooth over in his speech.

"Now more than ever, Europe needs strong and lasting ties between France and Germany," he told the business leaders. "I reject any absurd face-to-face with Germany." 

On Wednesday, the European Commission said France's new government must urgently speed up its reform plan, aimed at helping the economy by cutting business taxes at the same time as trimming public spending to bring the deficit to within EU limits.

The call showed that the EU was keeping up the pressure on Hollande after a government crisis this week provoked by three ministers who challenged his increasingly pro-business line and rejected budgetary rigour.

Paris has admitted it will not meet its public 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 kickstart growth and reduce debts.

Hollande has ousted the three ministers and named a former investment banker, Emmanuel Macron, as his economy minister.

"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.

"What will of course be fundamental will be the respect for fiscal efforts measured in structural terms," the spokesman added of the commission's role monitoring national government moves to bring deficits into line with EU-endorsed limits.

The spokesman declined to comment on the new government line-up but said it was important that France had confirmed its intention to press ahead with reforms and added that the commission was willing to help France in its efforts.

Earlier, Macron vowed to rebuild trust in the eurozone's second largest economy, and put an end to mixed messages and infighting on its economic policy.

"We have to win back the confidence our partners and investors abroad must have in our country, and to win back the trust of the French themselves. Without that, we can do nothing," the 36-year-old former top economic advisor to Hollande said at a handover ceremony with Montebourg.

Economists have welcomed Macron's nomination, seen as a sign Hollande will press ahead with a pro-business policy to cut corporate taxes to lift the economy out of stagnation while trimming the deficit.

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 economic 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."

Underlining the lack of confidence among investors in Hollande so far, data showed on Wednesday that morale in the manufacturing industry fell by one notch in August, falling further below its long-term average. Business climate overall also fell, particularly in retail trade.

In two years, Hollande has carried out reforms of France's generous pension system and complex labour market which critics argue go only part of the way needed to give a shot in the arm to the eurozone's flat-lining 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 notaries.

This is a longstanding demand from Brussels and one Hollande hopes will help convince EU peers it 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 concrete details for the plan beyond saying it would tackle taxation, regulatory and funding issues.

Housing has become a major headache for the government, with housing starts in France down to a 16-year low — a serious drag on the economy. Property developers say this is partly due to regulations agreed by the first Hollande government that set limits on the rent landlords can charge in towns with more than 50,000 people.

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.

The initial plan had been to bring lower-paid workers 2.5 billion euros in payroll tax cuts next year. The government has also promised to extend a rebate of just over 1 billion euros in income tax paid by poorer households into next year.

Going beyond the first labour 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.