VZCZCXRO2333
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #3741/01 2530606
ZNR UUUUU ZZH
R 100606Z SEP 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 9983
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 003741 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV ETRD ELAB PGOV FR
SUBJECT: GOF PUTS GROWTH FRONT AND CENTER 
 
 
Summary 
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¶1. (SBU) The Sarkozy government has spent the political rentree 
talking up proposals to stimulate economic growth.  Despite the 
OECD's September 5 downward revision of French growth estimates to 
1.8%, the government is maintaining its 2.25% projection.  In an 
August 30 keynote speech to the annual summer conference of the 
French business organization, MEDEF, Sarkozy said it was incumbent 
on the GOF to "find" an additional percentage point of growth. 
Separately, Sarkozy inaugurated a commission chaired by socialist 
Jacques Attali to look at impediments to growth.  So far, there is 
more form than substance: Sarkozy was the first sitting president to 
address MEDEF.  The forty member Attali commission may not reach 
agreement on the causes of slow growth but it fits with Sarkozy's 
broad approach to co-opting the smartest voices of the opposition to 
his reform agenda.  End summary. 
 
Sarkozy at the MEDEF 
------------------------------- 
¶2. (U) In an August 30 speech before 4,000 French business leaders, 
President Sarkozy said he wasn't afraid of making a clean break with 
the past ("rupture") and pledged to continue with measures to 
encourage work and create wealth.  It was incumbent on the 
government to pursue policies that could extract an additional point 
of GDP growth above current estimates to solve France's problems, he 
said.  Sarkozy said he would pursue fiscal reform, including cutting 
payroll taxes.  In what was interpreted as an allusion to continuing 
debate over replacing some payroll taxes and "social charges" with a 
VAT hike (the "social VAT"), Sarkozy noted that continually 
increasing taxes on factors of production was harmful to growth. 
¶3. (U) Hitting back at critics who say his program is little more 
than demand-side stimulus, Sarkozy underscored his intention to 
focus on supply-side measures, including broadening a previously 
announced R&D tax credit, and measures to encourage investment in 
small and medium-sized enterprises.  Sarkozy emphasized digital, 
biotech and clean energy as priority sectors for France.  In a 
general call for labor market reform Sarkozy asked why in France a 
husband and wife can have an amicable divorce, but an employer and 
employee cannot.  He also confirmed that the separate French 
agencies dealing with unemployment insurance and job 
placement/training would merge before the end of the year to improve 
functioning of the labor market.  And he touched on product market 
reform, suggesting that stores be allowed to open on Sundays. 
¶4. (U) In vintage form, Sarkozy mixed his pro-business message with 
a dose of populism.  He supports a capitalism of entrepreneurship, 
he said, not of finance and speculation.  Drawing almost word for 
word from earlier speeches, Sarkozy said "reciprocity" should guide 
the EU's foreign economic relations.  France could not abide 
"social, monetary and environmental dumping."  The EU was created to 
protect, not to leave Europeans more vulnerable.  Sarkozy also 
stepped up his criticism of exchange rate policy, saying the euro 
"should serve the economy."  To much applause, he said he would 
fight in Brussels and at the WTO for "an American-style Small 
Business Act" for Europe.  (Note: In a subsequent panel discussion 
EU Trade Commissioner Peter Mandelson pushed back forcefully against 
Sarkozy's suggestion that Europe had suffered from openness, noting 
that the EU's position on world markets was stronger than ever.) 
 
 
Impediments to Growth 
------------------- 
 
¶5. (U) Sarkozy's intervention at the MEDEF followed his August 30 
inauguration of a 40 member commission to look at how best to remove 
hurdles to growth.  Headed by socialist Jacques Attali, the 
commission includes a wide array of French and EU personalities 
ranging from former EU Competition Commissioner Mario Monti (much 
decried by Sarkozy during the negotiations over French state aid to 
engineering firm Alstom) to neurologist Boris Cyrulnik.  The new 
commission will focus on the growth of very small and small 
businesses and will make proposals to allow Sarkozy to "go out and 
get" the point of growth France needs.  The proposals will help 
inform a law on the modernization of the economy, to be presented to 
the National Assembly in spring 2008 and tipped to address 
competitiveness and product market reform issues. 
 
Reducing Government 
------------ 
 
¶6.  (U) Sarkozy, PM Francois Fillon and Finance Minister Christine 
Lagarde have been equally active in priming plans for reform of the 
state and cuts to the civil service.  PM Fillon told the annual 
gathering of French Ambassadors that France's 2008 budget would be 
marked by an "unshakeable will" to hold the line on public 
expenditures.  Finance Minister Lagarde subsequently called the 
GOF's plans for public sector reform an "austerity program," 
comments which were pounced upon by the opposition and unions and 
"clarified" by the Elysee.  PM Fillon subsequently said the 
government had no choice but to reduce expenditures, that the GOF 
would do so by introducing a plan to improve the efficiency of state 
institutions and cut the number of civil servants progressively. 
 
 
PARIS 00003741  002 OF 002 
 
 
 
Comment 
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¶7. (SBU) The Sarkozy government got off to a quick start in pursuing 
its economic policy agenda with passage of a "fiscal package" of tax 
measures in July.  The demand-side stimulus of those measures may 
well give a kick to French growth in the near-term.  But the harder 
reforms lie ahead.  Reigning in state spending, loosening the labor 
market and opening product markets will offend entrenched 
constituencies.  For now much of the action on these issues has been 
turned over to "social partners" (in the case of labor market reform 
negotiations), or to broad-based commissions.  Crunch time will come 
when those efforts come to a term and it's up to the government to 
take the hard decisions. 
Stapleton