French competitiveness: A rude awakening IN LESS than 24 hours this week, the French received three wake-up calls. On November 5th Louis Gallois, a businessman, unveiled a government-commissioned report on French competitiveness, in which he wrote of an "emergency situation." The same day the IMF urged France to cut public spending and reform the labour market - or risk falling behind Italy and Spain. And on November 6th Jean-Marc Ayrault, the Socialist prime minister, announced big new tax breaks for companies, urging the French to back the measures or face the "certitude of decline." This collective alarm call is long overdue. Both Mr Gallois and the IMF highlighted a steady loss of French competitiveness relative to Germany over the past ten years. Mr Gallois called for a "competitiveness shock": a cut in social charges worth as much as €30 billion ($38 billion), ideally in one year. This drop, he said, should be applied to salaries up to 3.5 times the minimum wage, financed by raising other taxes, such as VAT, green taxes, property taxes or the "generalised social contribution" (CSG). He also bemoaned France's heavy taxes, high public spending, bureaucratic complexity, poor industrial relations and "cult of regulation." Next to Mr Gallois's apocalyptic talk, the IMF report was positively measured. It spoke of France's "fragile" position, a "significant" loss of competitiveness and "dysfunctions" in the labour market. But it described France's unfixed problems in the context of the still gloomier woes of Italy and Spain. That sent a strong message. Before the Gallois report was published, the government hinted that it did not intend to embrace a competitiveness shock. President François Hollande spoke instead of a competitiveness pact, spreading measures over several years. So it was a surprise when Mr Ayrault said that, after all, he would adopt almost all of Mr Gallois's ideas. The biggest news was a planned cut in payroll taxes via some €20 billion of tax breaks, starting next year. This, said Mr Ayrault, would add up to a 6% reduction in labour costs, paid for by a small rise in VAT rates and an extra €10 billion in public-spending cuts. Under pressure from Socialist deputies worried about choking off consumer spending, he ruled out raising the broader-based CSG. Speaking after Mr Ayrault's announcement, Pierre Moscovici, the finance minister, stressed the symbolic importance of a Socialist government acting boldly on competitiveness. "We did not go for the idea of a shock," he said, but he insisted that the measures being adopted were "broad, strong and powerful." He predicted that the new tax credit would create 300,000 new jobs over five years and add half a percentage point to annual growth. The competitiveness pact, he said, demonstrated the government's commitment to "deep reform." The new tax breaks are certainly unexpectedly bold. So is the abrupt turnaround by a government that for months has refused to recognise France's labour-cost problem. But whether by themselves they will be enough to restore lost competitiveness is less clear. The public-spending cuts that Mr Ayrault promised to pay for the new tax breaks have yet to be spelt out in detail, let alone put to public-sector unions that form the backbone of Socialist Party support. As for the cult of regulation, the big unknown remains the present talks between employers and unions over softening labour-market rules. The high cost of labour is only one part of France's competitiveness crisis. Without loosening the complex rules that deter employers from creating jobs in the first place, lower social charges will go only so far to solve it.