French PM Philippe and Chancelor Merckel shaking hands
18 September 2017

Édouard Philippe in Berlin: "France must be strong for its partners – Germany first and foremost"

The Prime Minister made his first official visit to Berlin on 15 September: an opportunity to meet with the President of the Federal Republic of Germany, Frank-Walter Steinmeier, Chancellor Angela Merkel and German business leaders.
 

During this visit, Édouard Philippe set out his hopes for transforming France along the same lines as the successful reforms undertaken in Germany and other European countries. France has a host of strengths it can draw on, including its geographic situation, thriving cities and outstanding industrial sectors.
 
Edouard Philippe
"My hope was sparked in the wake of the second round of our presidential elections, when the French people opted for a change in mindset rather than a return to an insular way of thinking – for Europe rather than populism."
Édouard Philippe
15 September 2017

These strengths should not mask the country's "missed opportunities" for all that – which have led to persisting deficits and mass unemployment. In the same way as other European countries have done before, France will be able to resolve these through its own economic policy, underpinned by three key reforms: cleaning up public finances, creating an environment conducive to investment and tackling unemployment “from all fronts”.
 

1/ Cleaning up public finances

There are three thrusts to the Prime Minister's strategy for cleaning up finances and lowering taxes over the long run:
  • reducing public spending by 3 GDP points;
  • reducing debt by 5 GDP points by 2022;
  • reducing total tax and social security contributions by €20bn between now and the end of the five-year term.
Edouard Philippe
"With this budget, I will outline the financial road map for our nation for the next five years. What is our aim? To achieve visibility, predictability and stability for households of course, but also for businesses".
Édouard Philippe
15 September 2017
 
The political guidelines for the 2018 budget have been defined with this in mind, not least by:
 
  • Recasting policies bearing on jobs, housing and transport, all the while providing funding for the national priorities (defence, education, higher education, the energy transition, justice and law enforcement);
  • Considerably lowering taxes with a significant reduction in employees' social contributions from 2018, scrapping of council tax for 80% of French people and increase in the "prime d'activité", an incentive by way of an allowance to continue working or return to work;
  • Paying special attention to businesses, which will benefit from measures aimed at enhancing the appeal of the Paris financial hub, converting the competitiveness and employment tax credit (CICE) into lower employers’ social contributions from 2019 and bringing the corporate tax rate down to 25% by 2022.

2/ An environment conducive to investment

Well aware that investment in France is too low – at 1.2% when Germany's is around 2% – and that this is crippling growth, Édouard Philippe has identified two ways of resolving this:
  • shift the focus of French savings towards businesses by creating a 30% "flat tax" on savings income (a simple, clear and effective taxation method) and by scrapping wealth tax (replaced by a tax on immovable assets);
  • leverage public investment with a €10bn investment fund for innovation, relying on disposals of public shareholdings, as well as an investment plan for all future sectors, worth €50bn in all by the end of the five-year term.

3/ Tackling unemployment

Tackling unemployment tops the list of priorities for the Prime Minister, who intends to take up three challenges in this regard:
  • cut the cost of labour by reducing the burden of social contributions;
  • adapt the labour code to the new needs of employees and businesses, through Ordinances which allow for the widespread development of social dialogue, guaranteed conditions for contract of employment terminations, streamlining of the staff representation process (in businesses with over 50 employees), development of project-based contracts (“contrats de chantier”) and simplification of the way arduous work conditions are taken into account;
  • improve skills in three stages: at school by focusing resources on key skills acquisition, by overhauling the vocational training system and by developing apprenticeship.
Lastly, the Prime Minister underscores the fact that these reforms are just as necessary for France's economic partners as they are for France itself, for "France must be strong for its partners – Germany first and foremost."