French Ministers Tussle Over Urgency of Benefit-System Revamp

Two of Francois Hollande’s top ministers sent differing signals on how quickly to revamp the unemployment-benefits system, keeping alive a debate the French president sought to suppress.

For Finance Minister Michel Sapin, the matter can wait until the scheduled talks between labor unions and business in mid-2016. Economy Minister Emmanuel Macron indicated more urgency, saying the government can move faster.

The issue was raised last week by Prime Minister Manuel Valls, who said the wasteful system needs to be fixed in the “short term.” Hours later, Hollande shot down the suggestion, saying the government “has enough on its plate.” Sapin is siding with the president.

“The year 2015 should be used to think about an improvement of the unemployment insurance mechanism that would increase the incentive to resume work,” Sapin said in an interview with Bloomberg Television in Washington.

Asked about the same issue in an interview yesterday in the newspaper Le Journal du Dimanche, Macron was more strident.

“There shouldn’t be any taboo or posturing,” he said. “The unemployment insurance system has a 4 billion-euro ($5.1 billion) deficit. What politician can be satisfied with that? There was reform but not enough. We cannot leave it at that.”

Macron also said “we have six months to create a new reality in France and Europe.”

Stalled Economy

The unemployment system moved into focus after the French economy stalled in the six months through June and the government forecast full-year expansion of just 0.4 percent.

As a drain on resources, the welfare model is also under scrutiny as the European Commission prepares to evaluate France’s 2015 budget. Sapin, who has to submit his tax and spending plans this week, said in Washington that the commission needs to look past the missed deficit targets and see that the slips are the result of a lack of growth.

“We haven’t changed our budget policy,” Sapin said. “We’re putting in place exactly the tax cuts that we announced six months ago. We’re doing exactly the same spending cuts, 21 billion euros, as we planned. What has changed? Growth has slowed, inflation has dropped and everyone needs to take that into consideration.”

France’s credit rating outlook was reduced to negative from stable last week by Standard & Poor’s, which cited “policy implementation risk related to the budgetary consolidation.”

France’s budget deficit will widen this year for the first time in five years to 4.4 percent of output, and barely improve in 2015, dropping to 4.3 percent, under current plans. France won’t manage to cut the deficit to the European Union limit of 3 percent until 2017, two years later than planned.

“It’s not about the timing, it’s about the pace,” Sapin said. “Maybe sometimes we can go faster. But right now, in this period, with growth that’s half the pace of what was expected, with inflation that’s collapsed, we cannot cut our deficits at the same pace.”

Sapin travels to Luxembourg to meet with euro-area finance ministers later today.

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