PARIS (Reuters) - France must pursue economic reforms to redress its flagging competitiveness and can no longer rely on raising taxes to shore up public finances, as companies need fiscal stability to invest, European Central Bank President Mario Draghi said on Sunday.
“Big efforts have been made, what’s important is to continue on the path of reforms,” Draghi told weekly newspaper Le Journal du Dimanche. “Competitiveness remains insufficient and strengthening public finances can no longer rely on tax increases.”
Socialist President Francois Hollande’s government has launched a reform of the pension system and overhauled rigid labour rules to stimulate hiring. But efforts to cut the public deficit have so far relied largely on tax increases.
“France must regain fiscal stability so that companies can start investing again,” he said.
Despite reform efforts, unemployment in Europe’s second largest economy is stuck at 11 percent and gross domestic product contracted 0.1 percent in the third quarter, versus 0.3 percent growth in Germany.
But the Bank of France sees the economy gathering steam in the fourth quarter with growth of 0.5 percent. The Insee statistics office sees growth at 0.4 percent in the same period.
In the wider euro zone economy, Draghi said that uncertainty was diminishing, which should help to stimulate investment and encourage European banks to lend more freely, thanks partly to the ECB’s accommodating monetary policy.
“Uncertainties are retreating, which should help to launch investment and encourage banks to lend,” he said.
Asked if the ECB would act to stimulate growth in the euro zone, Draghi added: “We are always ready and able to act at a later date. ... Today we remain determined to maintain price stability and to protect the integrity of the euro.”
The ECB chief identified unemployment as the No. 1 problem facing European governments and pressed the leaders of indebted member states such as Greece to pursue tough structural reforms to regain growth.
EU paymaster Germany should act to stimulate investment, particularly in infrastructure, to maintain its economic strength following a wave of structural reforms conducted in the early 2000s, he said.
Europe should fear neither inflation nor deflation, Draghi said, although he added that a strong euro-dollar exchange rate had consequences on growth and inflation in the currency bloc.
A top priority for euro zone leaders was to make progress on a banking union to ensure the stability of the financial system.
“We must first make progress on banking union and complete reform programmes and deficit reduction efforts that we have started,” Draghi said.
Reporting by Nicholas Vinocur; Editing by Peter Cooney