In World Economy News 01/07/2017
France’s recent elections give the eurozone a historic opportunity to deepen economic ties, led by a deeper relationship with Germany, according to Bruno Le Maire, the country’s new finance and economy minister.
Speaking to The Wall Street Journal, Mr. Le Maire outlined the government’s aim to take a greater leadership role in Europe, and couched Emmanuel Macron’s ambitious program of domestic economic reforms as an effort to build the country’s position in the eurozone, but particularly with Germany.
“If we want to succeed in the transformation of the monetary union to an economic union, we have to go step by step, and hand in hand with Germany,” said Mr. Le Maire, who was formerly a member of France’s centre-right party, and a minister under President Nicolas Sarkozy.
“Germany is the stabilization nation. Germany has waited for many years for a stronger France. With the election of Emmanuel Macron they have exactly what they had waited for,” he added.
Economic reforms and spending
Mr. Macron’s promises to reform the French economy and cut corporate taxes were a centerpiece of his election platform, with labor market reforms like capping severance pay a major issue during the campaign.
“The first reform, maybe the most important one, will be the reform of the labor market. We will do it, and we will do it right now,” said Mr. Le Maire. “We will reduce the corporate tax rate for companies to 25%, the EU average, to make life easier for companies.”
To reach the EU target of a deficit no more than 3% of GDP this year, France’s country’s public audit office said Thursday that the new government would have to cut billions of euros of spending, with the deficit currently on track to reach 3.2% of GDP this year.
“For the credibility of France, the government will have to get the deficit to 3% of GDP,” Mr. Le Maire added. “We need to make difficult decisions on spending before November to get to 3%.”
Tackling France’s high unemployment rates is another focus for the government, but Mr. Le Maire argued that higher public spending wouldn’t address the problem of joblessness. Unemployment has declined, but remained at 9.3% in the first quarter of 2017.
“If we want to get rid of this situation, this grim situation, that has such negative consequences on French society, we must have the courage to introduce those reforms,” he said. “Excessive public expenditures are not the answer to unemployment, it is one of the reasons for unemployment in France. We are spending too much money for activities which do not produce jobs”
Steel and trade
President Donald Trump’s investigation into whether to curb steel imports in the name of national security would be raised when Mr. Trump visits France in July, according to Mr. Le Maire.
“We are very much concerned that that kind of decisions would be damaging for France and Europe,” said Mr. Le Maire. “We are an open economy and it would be very difficult for us to understand such a decision.”
“That’s exactly the kind of question the president could raise with President Trump during his visit to France,” he added.
“If we can avoid any kind of trade hostility between U.S. and Europe, it will be best for everybody,” he said.
European integration
Efforts to further integrate the eurozone will concentrate on reaching a common tax-rate agreement with Germany next year, and with the rest of the eurozone in the next five years. The new government also intends to pursue further fiscal integration, and the creation of a crisis fund to avoid the participation of the International Monetary Fund in any future bailout programs.
“We should find an agreement between France and Germany on a common basis for corporate tax rate in 2018,” said Mr. Le Maire. “It will be the basis for tax harmonization within the eurozone within five years.”
“European fiscal capacity is a complex issue but it is one of the feature of a fully-fledge economic issue,” he said. “We should be able to discuss and find a compromise with Germany on that.”
Brexit negotiations
Brexit negotiations between the U.K. and the rest of the EU officially began last week, and Mr. Le Maire stuck to a hard line on the access Britain could expect to the bloc’s single market after the country leaves.
“They cannot be out of the European Union and take all of the benefits of being in the European Union,” he said. “Sometimes we have the impression that some people in the U.K. believe it can be the case ‘we get out but we keep the benefits of remaining in.’ This is not possible.”
“In the financial sector for instance, you cannot be out of the European Union and keep the benefits of the European passport,” said Mr. Le Maire. “Once you’ve decided to be outside the European Union, you lose the benefits of the European passport.”
“What we are seeing now is a shift of the British power within the European Union,” he said. “The U.K. used to have a very important place within the European union. That’s not the case anymore, and it changes everything.”
Source: Dow Jones
