As the French government prepares to outline its strategy on improving business competitiveness amid runaway unemployment and zero economic growth, business leaders have called for radical action to reduce employment charges.

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French business leaders on Sunday applied fresh pressure on Socialist President François Hollande, whose popularity is waning in the face of a stagnant economy and high unemployment, to reduce employment charges as part of efforts to promote business competitiveness.

In an open letter to the government published in Sunday newspaper Le Journal du Dimanche, the heads of some 98 private companies said that the French economy had “reached the limit of what was tolerable”.

“For companies, operating costs must be reduced by at least 30 billion euros over the next two years by cutting the employers' portion of welfare charges,” wrote the members of the French Association of Private Businesses (AFEP).

“Our (profit) margins are at record lows,” they said, adding that France was suffering record levels of unemployment that in September breached the three-million mark to a rate of more than 10 percent.

Fears of a spending binge

The AFEP’s onslaught comes amid fears that the Socialist government will raise taxes and social charges to pay for deficit reduction, a move they say would further weaken French companies and force more factory closures.

Their open letter also called on the government to slash public spending by 60 billion euros - 3 percent of gross domestic product -- over five years to ease fiscal pressure on private businesses.

The cuts, they said, could be offset by increasing VAT from 19.6 percent to the European average of 21 percent.

The proposals were immediately rejected by Finance Minister Pierre Moscovici who said he “didn’t think” such radical action was achievable.

He also said that increasing VAT would cut into "the purchasing power of the French", which was a central issue in the run-up to the May and June elections that saw the Socialists take power.

The open revolt by France’s big businesses against the country’s still relatively new Socialist government follows similar pressure from leaders of Small and Medium-Sized companies (SMEs) who earlier in October successfully pressured the government to re-think proposed taxes on selling start-ups.

‘A new French model’

On Monday, a number of AFEP business leaders met with Prime Minister Jean-Marc Ayrault, who told reporters that “the government has its own method and its own timetable for dealing with the competitiveness of French businesses.”

Responding to Sunday’s call by the AFEP, he said: “There is an awareness in government that something needs to be done to put our economy back on track and to create what I am calling ‘a new French model’.

“But this new model can’t be created by destroying the structures we already have in place. It has to be achieved through dialogue, which is why we are speaking to business leaders, but also to [France’s powerful] trade unions.”

The renewed pressure comes ahead of a government-sponsored report on the issue of business competitiveness, authored by former head of European aerospace group EADS Louis Gallois, which is due at the end of this week. The government’s response is expected on November 5.

The French press has run stories on several apparent leaks from the report, including rumours that Gallois will urge the government to introduce a “shock” to the system with the scrapping of payroll charges paid by employers by as much as 50 billion euros.

Labour Minister Michel Sapin has ruled out "shock" therapy for the “convalescing” French economy. “Our economy is fragile ... let us not add more shocks,” he said.

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