French economy: 'Competitiveness shock' ruled out

BBC: French officials have cast doubt on a report likely to recommend sharp cuts in public spending before it has even been published.

The government-commissioned report into French competitiveness, due to be issued later on Monday, was written by former aerospace group EADS chief executive Louis Gallois.

Any "shock therapy" proposals, however, have already been ruled out by the Socialist government.

The report was commissioned in July.

"We cannot simultaneously restore public finances and impose a competitiveness shock," a government source told Reuters news agency before the report's publication.

Mr Gallois was asked by President Francois Hollande to investigate what was holding France back, as part of a "competitiveness pact", looking at why the French economy has fallen behind rivals such as Germany and suggesting reforms that could help address the gap.

France accounts for just 13% of eurozone exports, compared with 17% a year ago, and its unemployment rate stands at 10.2%, as against Germany's 6.9%.

The report's expected proposals, which have been widely reported in the French media, are likely to include slashing the social contributions paid by employers by 20bn euros (£16bn), as well as those paid by employees by 10bn euros.

To recoup some of these lost funds, the report is expected to suggest increasing VAT, as well as payments into a separate social levy that affects pensions and workers' pay.

However, the government has already made clear that it will not contemplate shifting more of the tax burden on to households when it has already drastically cut spending, in a bid to reduce its 2013 deficit to 3% of gross domestic product (GDP) from 4.5%.

An indication of the report's likely reception came from Social Economy Minister Benoit Hamon.

"This report is a contribution. It's the government that governs," he said.

The government's official response to the report is due on Tuesday.