VZCZCXRO3893
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #0965/01 0721326
ZNR UUUUU ZZH
R 131326Z MAR 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 5572
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 PARIS 000965 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV ELAB FR
SUBJECT:  CONFERENCE ON FRENCH GROWTH GAP 
 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET 
 
Ref:  Paris 653 
 
¶1. (U) SUMMARY.  On March 6 Prime Minister De Villepin hosted a 
conference on economic growth.  There was much talk of the 
Scandinavian-inspired concept of "flexisecurity," as well as GOF 
policies designed to support innovation.  But real reforms required 
to boost GDP growth in the medium-term have little chance of 
garnering political support in the short term. END OF SUMMARY 
 
Conference on Economic Growth Open to a Large Debate 
--------------------------------------------- ------- 
¶2. (U) Prime Minister Dominique De Villepin hosted his first (and 
probably last) Conference on Economic Growth on March 6, 2007, with 
Finance Minister Thierry Breton, Minister for small and medium-sized 
companies Renaud Dutreil, and delegate Minister for higher education 
Francois Goulard.  Edmund Phelps, the 2006 winner of the Nobel Prize 
in Economics, and Jean-Philippe Cotis, the OECD chief economist, 
participated in the conference, along with the then head of the 
Commission of Economic Affairs of the National Assembly Patrick 
Ollier, senior economists, international experts, businessmen and 
unions representatives. 
 
Filling the Economic Growth Gap 
------------------------------- 
¶3. (U) The conference considered why France persistently lags other 
industrialized countries in economic growth.  De Villepin said that 
"3 percent GDP growth, a cut in the unemployment rate to 6 percent, 
and a decrease in public debt to 55 percent of GDP by 2012 are 
objectives that should be shared by all."  He blamed the growth gap 
for the slow rate of increase in France's purchasing power, saying 
that if France had had an economic growth rate comparable to that of 
the U.S. in the last fifteen years, the annual average wage in 
France would have been 9,000 euros higher.  He also asked the 
National Statistical Agency INSEE to provide the French with "two or 
three new economic growth indicators" that take into account "social 
progress," saying "economic growth is not only an economic issue, 
but also a choice of society. There is no contradiction between 
economic dynamism and social justice." 
 
By Increasing Employment with "Flexisecurity" 
------------------------------------------- 
¶4. (U) De Villepin proposed "pursuing and anchoring" economic 
choices made since 2005, notably with a reform of the labor market 
to reduce the unemployment rate.  The reform would consist in the 
implementation of a "French-style flexisecurity system" (a 
Scandinavian model associating flexibility for enterprises and 
security for employees), the merger of the National Agency for 
Employment (ANPE) and the Unemployment Insurance Agency (UNEDIC) 
along with a reinforcement of professional orientation and 
efficiency training, and "a reevaluation of work versus assistance" 
with the doubling of the earned income tax credit (EITC). 
 
By Favoring the Development of Companies 
---------------------------------------- 
¶5.  (U) De Villepin advocated French national champions, but 
questioned, with Phelps, "the validity of regulations that slow the 
creation of young innovative enterprises and dynamic small and 
medium-sized companies ("gazelles")."  He described measures already 
taken in favor those companies, but did not elaborate on future 
plans. 
 
By Encouraging Innovation 
------------------------- 
¶6. (U) Innovation is the "key for the French future" in a global 
economy.  Government measures include efforts in favor of higher 
education and research, and to encourage innovation in the 
industrial sector, and also in the government sector. 
 
PM Supports Candidate Nicolas Sarkozy 
------------------------------------- 
¶7. (U) De Villepin added that "all those proposals may be found in 
Nicolas Sarkozy's program".  In an exceptional compliment, de 
Villepin deemed that Sarkozy's program showed "voluntarism, 
imagination, mobilization, and rallying of all forces," saying that 
"many of those elements are necessary and indispensable to allow our 
country to face the challenge." 
 
Government Sticks to 2.0-2.5 percent GDP Growth 
--------------------------------------------- -- 
¶8. (U) Breton confirmed that the government is forecasting GDP to 
increase between 2.0 and 2.5 percent in both 2007 and 2008, led by 
 
PARIS 00000965  002 OF 002 
 
 
solid consumption thanks to rising wages, income tax cuts and an 
increase in the EITC.   The French economy should create 190,000 
jobs in 2007 and 205,000 jobs in 2008 in the non-farm private sector 
(or 230,000 jobs overall in both years) allowing "a continued and 
quick decrease in the unemployment rate."  The inflation rate should 
slow to 1.3 percent in 2007 and 1.4 percent in 2008, after 1.6 
percent in 2006.  The forecast takes into account a euro equal to 
1.30 USD and oil prices of 65 USD per barrel.  Quizzed by 
journalists, Thierry Breton said he had "no special fears" about the 
impact of a 25-basis point increase in the European Central Bank 
interest rates.  The government forecast includes a decrease in the 
overall budget deficit from 2.6 percent of GDP in 2006 to 2.4 
percent in 2007 and 1.7 percent in 2008, and a decrease in the 
public debt from 64.6 percent of GDP in 2006 to 63.6 percent of GDP 
in 2007 and 62.6 percent in 2008.  At the same time, taxes as a 
percent of GDP would decrease from 44.4 percent of GDP to 44.0 
percent and 43.8 percent in 2008. 
 
Comments 
-------- 
¶9. (SBU) The conference summarized ideas advocated by the government 
in the last two years, but did little to advance a structural reform 
program.  The implementation of a Scandinavian-style flexisecurity 
system, which proponents say reconciles economic and social 
efficiency, would be a noteworthy reform.  But, given that the 
"flexi" concept is anathema to French labor unions, and still raises 
practical questions including its financing, it would no doubt 
require some "French-style" adjustments, which could reduce 
efficiency.  The consensus that GDP growth will remain sluggish in 
the medium-term, along with pending elections, means that real 
reforms have little chance in the short term. 
 
STAPLETON#