Smoke and mirrors from France

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Breton Says French Need to Work More to Pay for Social Model June 21

(Bloomberg) -- France's Finance Minister Thierry Breton says the French need to work more. Paying for a social benefits system that has helped debt to rise to a record 66 percent of gross domestic product will require people to put in more hours, the former head of France Telecom SA said at a Paris press conference today.

``To finance our model we need to work more,'' the 50-year- old minister said. ``We have to work more to create growth. We have to work more throughout our lives.''

Breton's comments come just weeks after France rejected the European Union constitution, with opponents claiming it was too ``liberal'' and didn't do enough to defend the French social model. Faced with a five-year-high unemployment rate of 10.2 percent and slowing economic growth, the government of new Prime Minister Dominique de Villepin may struggle to meet his goal to revive confidence in 100 days.

``The priority is to increase the employment rate and that means getting more people of working age into a job,'' said Raymond Torres, head of the employment analysis and policy division of the Organization of Economic Cooperation and Development.

French people put in the fewest hours among the 25 European Union countries, averaging 39.1 hours per week, according to the EU's statistics office. The previous Socialist government's attempt to create jobs by limiting the working week to 35 hours, effectively a job-share plan, is being undone by President Jacques Chirac's government after it failed to dent joblessness.

Social Benefits

French social benefits can be generous. Employees of state- owned utility Electricite de France, for example, retire at 75 percent of their final salary after 37 1/2 years of work, with the retirement age fixed at 60 for office workers and 55 for field workers.

EDF spends about 400 million euros a year on the Caisse Centrale d'Activite, its labor council, which itself employs 3,680 staff and runs more than 400 holiday resorts, sports and other recreation centers in France.

De Villepin, installed after voters rejected the EU constitution in a May 29 referendum, has launched a 4.5 billion euro ($5.6 billion) scheme to boost hiring and economic growth as part of his 100-day plan.

Breton, who today cut the government's 2005 economic growth forecast for the second time in three months, said his biggest concern for the French economy is that its rising debt level isn't sustainable.

``We must have the courage to say that France today lives beyond its means,'' he said. ``Next year, for the first time in our history, revenue from income taxes will be equivalent to the interest payments of France's debt.''

Shrinking Earnings

As young people study longer and people retire earlier, the amount of time the French spend earning money has shrunk to 45 percent in 2005 from 65 percent in 1970, while debt has risen to 1.07 trillion euro ($1.29 trillion) from 40 billion euro, the finance ministry said.

France, Europe's third-largest economy, may expand by less than 2 percent instead of between 2 percent and 2.5 percent, Breton said today.

As lower growth crimps tax revenue and boosts welfare spending, it may make it difficult for France to bring its deficit below the EU limit of 3 percent this year, after having breached the rules in the past three years.

Breton said France will meet its deficit promises and bring its budget gap below the limit, something Bank of France Governor Christian Noyer said today is ``crucial''

``We need a policy to limit public spending and an acceleration of structural reforms,'' Noyer, who sits on the European Central Bank's governing council, said at a briefing in Paris. French Budget Minister Jean-Francois Cope said today spending increases will be limited to the inflation rate in 2006.