The government projects public spending to increase in real terms by around 0.25% per annum (on average) between 2019 and 2022, compared to +1.1% in 2017–2018. Achieving this significant change is necessary and will require additional efforts, which are not yet specified. Public expenditure needs to be made more efficient, in particular on social protection spending, which include pensions and unemployment benefits and which constitute the bulk of the difference between French and German public spending ratio, as can be seen on the graph. [slide 11] Second, I would like to emphasise the interaction between labour market and education reforms. Ambitious labour market reforms have been implemented, aiming at increasing employment flexibility. The negotiation space given to social partners for decision-making, especially at firm level, has been widened. This could reconcile efficiency and worker protection, as we see it in Northern Europe. Staff-representation obligations have been simplified by the creation of a single representative body instead of three, which enlarges the negotiation field and hence eases compromise. Finally, the uncertainties of labour disputes have been eased with a cap on severance pay in case of abusive lay-off and a new type of collective layoff by mutual consent. [slide 12] To yield its benefits, increased flexibility on the labour market requires greater adaptability of skills through a better-functioning lifelong training and apprenticeship system. Without adaptability of skills, the higher layoff rate due to increased flexibility could push up structural unemployment, as unemployed workers deprived from appropriate skills may not find a new job.

While we welcome the measures announced at the Eurozone summit in July, further resolute measures to strengthen the banking sector, credibly restore debt sustainability in the Eurozone periphery, and lift long-term growth potential through structural reform are necessary to restore market confidence in the short term and contribute to global growth and stability in the long term. The Fund should be pro-active in proposing solutions and mediating their adoption. We believe that progress in structural reforms will be key to restoring growth in the mediumand long-term. Although each crisis is different, our efforts during the Asian crisis that brought about a relatively fast recovery may provide a useful lesson for countries facing current difficulties. From our experience, the determination to undertake and stick with structural reforms, particularly in the financial sector, was a crucial factor that led to an improvement in confidence, competitiveness and growth. The fund’s response i) Global Financial Safety Nets (GFSN) With substantial downside risks to growth in the global economy and heightened volatility in financial markets, the Fund should assess the adequacy of its resources against expected financing needs. At a minimum, there should be no reduction in Fund resources during this time. In this regard, countries in our constituency which are participants of the New Arrangements to Borrow fully support the extension of the activation period to March 2012. We also regard as particularly relevant the Fund’s work to develop a more coherent response to systemic events, including short-term liquidity provision to crisis bystanders.