Bloomberg News

Hollande Business Policies Faulted by French Executives

August 31, 2012

France's President Francois Hollande

Francois Hollande, France's president. Photographer: Andrew Harrer/Bloomberg

French corporate leaders criticized Socialist President Francois Hollande’s government for policies they say hurt companies already battered by a slowing economy and decades of business-unfriendly practices.

“Each week, steps voted in parliament are slowing public and private actions,” Guillaume Poitrinal, chief executive officer of Unibail-Rodamco SE (UL), Europe’s largest publicly traded property owner, said yesterday at a conference organized by the French employers’ group Medef on the outskirts of Paris. “We have a frenzy of regulations. In an accelerating world, we need more flexibility for companies, more flexibility on labor, and we need quicker public action.”

Entrepreneurs and executives say businesses are being squeezed by higher corporate taxes and more stringent policies as Hollande’s government struggles to keep its pledge to cut the budget deficit. The move comes as the government faces an economy that hasn’t grown in three quarters, joblessness at a 13-year high and a record trade deficit.

“We’re suffering from this backdrop that’s becoming more and more constraining,” said Benoit Potier, CEO of industrial gas maker Air Liquide SA. (AI) “We need a stabilization of the regulatory framework; we need to invest in education and training. Broadly speaking, we need a pro-business climate.”

Hollande, who won office this year on campaign promises of social justice and countering Europe’s sovereign debt crisis with growth, is being forced to address corporate complaints that labor laws are too restrictive, wage costs and social charges too high and corporate taxes too steep.

‘Tax Champions’

“French companies are the most taxed in Europe; we’re the champions of corporate taxes,” Laurence Parisot, the head of Medef, said in a Bloomberg Television interview. “This is a major issue for us. Also, social laws are so complex, our companies are not able to adapt to changes in the world.”

Hollande has proposed increasing taxes for big companies and cutting levies for small and mid-sized businesses. He wants to impose a 75 percent levy on income above 1 million euros a year and special taxes on banks and oil companies. France put into effect this month a tax on financial transactions.

The president has also pledged to repeal 29 billion euros ($36.5 billion) of tax breaks over the next five years. He wants to increase the total tax level -- payroll and profits -- to 46.9 percent in 2017 from 45.1 percent in 2012.

At a conference last month in Aix-en-Provence, Louis Gallois, former chief executive officer of European Aeronautic, Defence & Space Co. (EAD) and the government’s point person on competitiveness advocated a cut in corporate taxes and charges.

Labor Costs

“We need to create a competitiveness shock,” he said, calling for cuts in taxes and social charges of as much as 50 billion euros. “It has to be quite massive.”

France has the euro area’s second-highest unit cost of labor after Belgium, according to an April 2012 Eurostat report. Its cost of 34.20 euros an hour compares with Germany’s 30.10 euros, Italy’s 26.80 euros and 20.60 euros for Spain.

The expense has made companies reluctant to hire, while the economic slowdown has left almost 3 million people jobless.

“We have to talk about labor costs,” Tiremaker Cie Generale des Etablissements Michelin CEO Jean-Dominique Senard said at the Medef conference today.

Companies also say one of the biggest obstacles to hiring is the “Code du Travail,” a 3,200-page labor rulebook that decrees everything from job classifications to leave for training to the ability to fire.

Michelin has decided to build a plant in the U.S. for the first time in 35 years even though labor costs there are higher because of the business “environment and climate,” Senard said, complaining about the long-drawn process in France to lay off workers or modify contracts.

Funding Woes

“It’s not the public sector that’s going to create jobs in the years to come, it is companies,” Stephane Richard, CEO of France Telecom SA (FTE), said at the conference yesterday. “Making the environment conducive to business is key. Employment is the most urgent of the urgent subjects.”

In the absence of such policies, even France’s coveted welfare system is in danger, said Unibail-Rodamco’s Poitrinal.

“The welfare system won’t survive without greater flexibility and quicker public action.”

The government’s policies need to make investing in companies more appealing, said Jean-Louis Chaussade, CEO of Suez Environnement (SEV), Europe’s second-biggest waste company.

“We must give companies funds to allow them to develop,” he said. “Small shareholders are being hammered. Dividends are hammered, and we’re going to push savings into risk-free passbooks, which isn’t the way to go. To create jobs in France, we need French companies, hence we need capital.”

Government Reassurance

On the industrial front, companies question the government’s plans to cut the share of nuclear energy in the country’s electricity production. Nuclear energy provides more than three quarters of French power production and helps keep the country’s electricity prices among the lowest in Europe.

“Nuclear energy is clearly less expensive for us,” Cie. de Saint Gobain (SGO) Chief Executive Officer Pierre-Andre de Chalendar said in November.

Energy Minister Delphine Batho defended the government’s plan at the conference yesterday, saying, “we will lower the proportion of nuclear in electricity production. We won’t get out of nuclear because we will need it for a long time but at the same time we need to diversify our sources. We can keep nuclear jobs and add jobs in solar and wind.”

Finance Minister Pierre Moscovici and Labor Minister Michel Sapin also sought to reassure businesses.

‘Quicker, Simpler’

“Competitiveness isn’t a dirty word,” Moscovici said as he pledged to set up a framework favorable to investment and innovation. “Government services must also work in a quicker and simpler way.”

He said the 2013 budget to be presented in the week of Sept. 24 will have measures for companies. He also said social spending can’t be covered entirely by payroll taxes, promising to address the issue next year.

France needs rules that “allow companies to adapt,” Sapin said in a Bloomberg TV interview, adding that he’s discussing adaptability with companies. It’s about the “ability of companies to adapt to a changing world, changing technology and economic shocks.”

To contact the reporters on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net; Tara Patel in Paris at tpatel2@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net


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