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France cuts fuel prices to boost economy

France’s socialist government has struck a deal with fuel suppliers to cut petrol and diesel prices by 6 euro cents a litre for the next three months in a new effort to shore up flagging economic activity. Pierre Moscovici, the finance minister, said the government had agreed to split the cost with fuel producers and distributors pending further talks on more permanent measures to curb fuel prices, which have hit record levels on French forecourts in recent weeks. The agreement came a day ahead of an address by Jean-Marc Ayrault, the prime minister, to the country’s business leaders in which he is expected to seek to lower tensions with the private sector over how to confront the economic slowdown. In recent weeks, the government has signalled increasing willingness to listen to business calls for structural reforms, particularly to loosen France’s rigid labour market and limit tax increases. President François Hollande last week met a delegation of some of the country’s top banking and industry leaders to discuss their concerns. The government, in office since May, is alarmed by increasingly gloomy indicators for the economy which has shown zero growth for the past three quarters, threatening to undermine its commitments to reduce the budget deficit next year to 3 per cent of gross national product without resorting to harsh austerity measures. Rising fuel prices have added to a decline in purchasing power, undermining consumption which is the main driver of the French economy. Unemployment is rising steeply, with figures released this week showing a 41,000 rise in the number seeking full-time work in July, bringing the figure to just under 3m in mainland France, a 13-year record. Mr Moscovici said the government’s half share of the fuel measure would cost taxpayers €300m in lost revenues – at a time when it is facing the task of finding more than €30bn in budget savings next year to meet its deficit target. The deal with the fuel industry was made despite distributors saying their profit margin was as little as 1 cent a litre. This month the price of diesel, used by 80 per cent of motorists in France, hit a record of €1.46 a litre. Laurent Parisot, head of Medef, the employers’ federation, said in an interview published on Tuesday that she hoped Mr Ayrault would be “open not defiant” and “attentive not suspicious” when he becomes the first socialist prime minister to open Medef’s annual summer conference. But she told the Le Monde newspaper that the government, which plans to split budget savings equally between tax increases and spending cuts, should shift the ratio to 2:1 in favour of spending cuts. She also reiterated that Medef would not participate in planned talks with the government and trade unions on labour market issues unless there was a commitment to greater flexibility. Source: Hugh Carnegy in Paris Link: http://www.ft.com/intl/cms/s/0/d509fcea-f11e-11e1-a553-00144feabdc0.html#axzz24uLANqli

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