France readies response to "shock" industry review

Mon Nov 5, 2012 10:28am EST
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By Catherine Bremer and Emmanuel Jarry

PARIS (Reuters) - French industrialist Louis Gallois called for a patriotic effort to reverse declining competitiveness via shock therapy as he handed in a review on Monday which the Socialist government commissioned and is now under pressure to heed.

Gallois is prescribing slashing 30 billion euros ($38.54 billion) off payroll taxes and loosening labor laws to reverse a long decline in industrial competitiveness that has eaten away at exports and bled factory jobs.

The widely leaked recommendations have set frustrated industry heads against a government reluctant to shift part of the tax burden from employers to households which are already struggling with rampant unemployment and an austerity budget.

Gallois said the 22 recommendations set out in a review to be detailed to media later in the day were tough but necessary.

"The French people need to support this collective effort which could be a magnificent project for our country -- winning back our industry," he told reporters as he left the prime minister's office. "This will require real patriotism."

President Francois Hollande said "strong decisions" would be taken based on the report, despite having lowered expectations for radical reforms by ruling out any "shock" measures.

The weekly Le Point reported, without citing its sources, that government plans, as a compromise, to offer temporary tax credits from next year to companies keeping jobs in France that would eventually add up to 20 billion euros.

It would balance that with public spending cuts and a tiny rise in value-added tax to 20 percent from 19.6 percent.   Continued...

French industrialist Louis Gallois (L) hands over his report on competitiveness to France's Prime Minister Jean-Marc Ayrault at his Hotel Matignon offices in Paris November 5, 2012. REUTERS/Philippe Wojazer