French Finance Minister Pierre Moscovici rebuffed European concern that President Francois Hollande may be moving too slowly to revamp the economy, saying his government’s policies are “ambitious and credible.”
“France is reforming hard and reforming fast,” Moscovici told journalists in Vilnius, Lithuania, where he was meeting with euro-area finance ministers, central bankers and European Commissioners including Olli Rehn.
The remarks reflect the international pressure on Hollande’s government to overhaul an economy that has lost competitiveness to its European peers over the past decade as labor costs climbed and deficits accumulated. In the past two weeks France announced a pension reform that avoided lifting the retirement age and plans for a larger-than-expected deficit this year.
“There’s always the question whether the glass is half full or half empty” with France, Rehn said today. “France is going into the right direction in terms of economic reforms but there is still much more to do.”
Hollande’s pension plan will extend working lives to 43 years by 2035 from 41 years currently. Yet the increase avoids accelerating an increase in the effective retirement age until 2020, relying instead on higher contributions from employees and employers to trim the retirement system’s deficit in the meantime. The government has pledged to offset the increase for employers to hold down labor costs, though it has yet to specify how.
The pensions overhaul “must not add costs for business or discourage employment,” Rehn said earlier this week in Le Figaro newspaper. “We’re still waiting to hear how the negative impact on labor costs will be compensated.”
Moscovici said he had a “long meeting” with Rehn last week in St. Petersburg and that the discussion was “serious and constructive.” The two men have “excellent relations,” he said.
Hollande’s Socialist government also announced this week that it expects to have a budget deficit equivalent to 4.1 percent of gross domestic product this year and 3.6 percent in 2014, before bringing the shortfall below 3 percent the following year. The commission had predicted a 2013 deficit of 3.9 percent of GDP.
The difference is due to the slower-than-expected economic recovery, Moscovici said, adding that the 2014 deficit-reduction effort will rely on 15 billion euros ($20 billion) of spending cuts and only 3 billion euros of tax increases, in line with commission recommendations.
“France is a country that is changing quickly,” Moscovici said. The objective “is to have a more resilient economy,” he said.
The finance minister also pointed to France’s low borrowing costs as evidence of the credibility of its policy. The premium France pays over Germany to borrow for 10 years is currently 56 basis points, down from 80 points in November last year and more than 200 points in late 2011. The country also pays about 40 points less than the U.K. to borrow for a decade.
“The best proof remains the same: interest rates haven’t moved,” he said. “Our reforms are understood, our policies are credible.”