VZCZCXRO6424
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #0579/01 0441640
ZNR UUUUU ZZH
R 131640Z FEB 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 4914
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 000579 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV ETRD ELAB PGOV FR
SUBJECT: FRENCH PRESIDENTIAL ELECTIONS: THE MESSAGE FROM THE 
BUSINESS COMMUNITY 
 
 
Summary 
------- 
¶1.  (SBU) As campaigning picks up for France's Presidential 
elections in April, business groups and think tanks are making their 
voices heard in unusual ways to "ensure that key economic issues are 
not ignored."  All forms of communication -- from special web sites, 
to books and jamboree-style meetings in sports venues -- are brought 
into play to publicize the challenges facing business and highlight 
reform goals such as greater labor flexibility, cuts in government 
spending, cuts in payroll taxes, more innovative SMEs, and a more 
efficient education system.  At the same time, French business 
groups are jumping into the fray to reconcile French public opinion 
with the market economy and counter a widespread attitude of 
mistrust toward business among the French political class and 
population-at-large.  End of Summary. 
 
Business is having its say in French politics 
--------------------------------------------- 
¶2.  (SBU)  Less than three months before France's April 2007 
Presidential elections, business initiatives have multiplied to 
ensure that critical economic issues facing France are addressed in 
the campaign.  The business community fears that political parties 
may lack the economic acumen or the political courage to initiate 
concrete proposals for tackling major structural problems, such as 
sluggish growth (2.0 percent in 2006), chronic unemployment (at 8.6 
percent), labor market rigidity, high payroll taxes, a soaring 
public debt (66 percent of GDP) and a record trade deficit (29 
billion euros in 2006). 
 
¶3.  (SBU)  France's leading business lobby, MEDEF, was the first 
business organization to appoint itself as the policy "suggestion 
box" for candidates during the presidential campaign.  As one MEDEF 
senior official recently told us, "politicians had absolutely no 
economic ideas or programs."  The business think tank Enterprise 
Institute has followed suit, adopting a high-profile to heighten 
public awareness of fundamental structural problems that prevent the 
economy from growing more quickly and creating jobs at a more rapid 
pace.  Other business organizations such as "Croissance Plus" 
("Growth Plus"), which groups innovative companies, have since 
jumped into the fray in a bid to force presidential candidates to 
take a stance on long-avoided policy issues. 
 
Varied ways of delivering the message 
------------------------------------- 
¶4.  (SBU)  MEDEF, France's largest federation of companies, recently 
kicked off its official campaign with the publication of a book 
entitled "A Need for Air," which contains proposals to "revive 
French economic growth and competitiveness and increase the wealth 
of all French people."  Speaking before 6,000 of its delegates in 
Paris' largest sports and concert arena during its annual assembly, 
the head of MEDEF, Laurence Parisot, called for lower payroll taxes, 
a reform of the education system and a more flexible labor market. 
She also argued for a non-punitive tax regime to be enshrined in 
France's constitution, a requirement for balanced public spending, 
and tax incentives to promote innovation, especially in small and 
medium-sized companies. 
 
¶5.  (U)  Reacting to pledges from the current government to raise 
the minimum wage, Parisot further suggested that an independent 
commission be set up to decide on the minimum wage.  She asked that 
the next government appoint a senior official in charge of 
overseeing reforms to make France more competitive.  To highlight 
the excessive tax burden on French companies, she pointed out that 
the total cost of employing a worker earning 50,000 euros (USD 
65,000) per year was 35 per cent higher in France than in the United 
States.  Comparatively high payroll taxes prevent French companies 
from increasing salaries, creating jobs and taking risks. 
¶6.  (U) Adopting an equally high profile, leading business lobby 
group Enterprise Institute ("Institut de l'Entreprise"), initiated a 
special website (www.debat2007.fr) which analyzes the two leading 
candidates' economic platforms, and assesses their costs.  In light 
of proposals made so far, the Enterprise Institute estimates 
Segolene Royal's economic program would cost some 53 billion euros a 
year in additional expenses, while center-right UMP Party election 
promises add up to just under 50 billion euros in additional annual 
spending. 
¶7.  (U) Headed by Michel Pebereau, Chairman of the Board of 
Directors of leading bank BNP Paribas, the Enterprise Institute has 
long been sounding the alarm to control the public deficit and 
reduce public debt.  Ways to deal with these and other major 
structural reforms have been outlined in its upbeat book: "It is 
possible! This is How...".  A newcomer to the Presidential scene, 
"Croissance Plus" recently published its own 91 proposals to spur 
the creation of innovative small companies and introduce flexibility 
in the labor market in a book entitled "Let Gazelles Run." 
Sarkozy Gets the Message 
------------------------ 
¶8.  (U) Proposals by MEDEF, Enterprise Institute and Croissance Plus 
have already been incorporated into the platform of center-right UMP 
party leader Nicolas Sarkozy.  On taxes, Sarkozy recently pledged 
that any hour worked beyond the legally defined 35-hour work week 
 
PARIS 00000579  002 OF 002 
 
 
would be tax-free for both employers and workers.  Firms which 
invested and created jobs would pay lower taxes on their profits. 
He further promised to reduce the ceiling for all direct taxes to 50 
percent of revenues from the current 60 percent.  Sarkozy would also 
reduce the French corporate tax rate, which at its current level of 
33 percent is eight points above the European average. 
¶9.  (U) On labor flexibility, Sarkozy proposed to do away with 
France's two-tier system of work contracts (long and short-term) and 
introduce a single contract with streamlined dismissal procedures. 
The aim is to end a split in the labor market between employees on 
generous open-ended work contracts that are costly to terminate, and 
those on short-term contracts with little security.  To ensure the 
survival of France's generous pension system, Sarkozy has already 
proposed raising the retirement age and addressing the inequalities 
between public and private sector workers by reforming the so-called 
"special regimes" - i.e., overly generous public enterprise pension 
plans. 
Looking beyond the Presidential Race 
------------------------------------ 
¶10. (SBU) MEDEF, the Enterprise Institute and Croissance Plus all 
see the task of the business community as daunting in the longer 
term.  As a member of the French Association of Private Enterprises 
(AFEP) put it succinctly to us: "We have to make the State 
understand companies and convince French public opinion that the 
state is not omnipotent and that companies and markets can be 
trusted to generate growth and jobs."  The French business community 
is aware that people still prefer by and large to believe that the 
"public powers" will "tame" companies, protect workers and spur 
economic growth with public spending.  In a 22-country survey 
published in January 2006, France was the only nation disagreeing 
with the premise that the best system is "the free-market economy." 
In the poll, conducted by the University of Maryland, only 36 
percent of French respondents agreed, compared with 65 percent in 
Germany, 66 percent in Britain, 71 percent in the United States and 
74 percent in China. 
 
¶11.  (U) The business community believes that these attitudes are 
behind French reluctance to introduce flexibility into the labor 
market and accept the realities of deregulation and globalization. 
As a result, both the business community and the government are 
reaching out to schools and university campuses through workshops, 
debates and internship programs for students as well as economics 
teachers, to change mindsets.  As Henri de Castries, head of the 
insurer Axa, told participants to a MEDEF workshop on "liberalism" 
last summer: "When we reject liberalism, it is because we are scared 
of reform.  I think fear among the troops reflects a lack of vision 
by their leaders." 
¶12. (SBU) French business executives know they must steer a delicate 
course if they are to persuade presidential candidates of the need 
for economic reform without alienating a French public that is 
skeptical of the private sector.  While the political right believes 
business is more firmly in its camp than in any recent election, 
MEDEF's Secretary General told us recently that despite Nicolas 
Sarkozy's talk of "rupture," he's not convinced the UMP candidate is 
a "grand liberal."  As Finance Minister Sarkozy "wanted to show the 
economy could be controlled by politicians," the MEDEF official 
said.   For its part, MEDEF has consciously lowered its profile 
under current leadership to keep from becoming a lightening rod for 
anti-business criticism, and a political liability, the official 
said.  To fend off suspicions of the private sector, Pebereau of the 
Enterprise Institute bluntly stated at a recent Forum of 
Entrepreneurs that France has to "abandon the fiction that it can 
have a future outside the market economy and that it can be 
prosperous without companies."  Summing up the French business 
message, he said that the market economy was not an "American" or a 
"Right" concept, but very much a notion for the 21st century. 
STAPLETON