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France: Anti-Business Image Is 'Anglo-Saxon Caricature'

Written by Holly Ellyatt, Reporting from Stephane Pedrazzi in France
Thursday, 10 Jan 2013 | 2:25 AM ET

France may have bid adieu to one of its main cultural exports in actor Gerard Depardieu who has left the county in a protest over tax, but it is assiduously courting the international business world in order to revive the French economy.

The French finance ministry is seeking to attract foreign investment in a bid to stave off the country's waning competitiveness and growth outlook. In a press conference on Wednesday, ministry officials said France was still a place for business, despite concerns to the contrary.

Speaking at the press conference in France, French finance minister Pierre Moscovici denied that fiscal pressures in France were deterring foreign investment.

"We are going to have to look into that in a precise way because I think there are some fake ideas about that. France is a competitive country…we are a strong and attractive country," he told CNBC on Wednesday.

French Industry Minister, Arnaud Montebourg, blamed the Anglo-Saxon media for giving foreign investors a bad image of France. "The Anglo-Saxon caricaturists, who have a lot of talent in the press – including the English press- always have a very negative view of France," Montebourg told CNBC, emphasising France's positive points.

"If we look at the facts, France has a much better ratio than many large countries in the field of public finance debt restoring and even on foreign trade. France has its problems…but our choice, our work, our action is to fix the problems."

Courting Foreign Trade

The attempt to woo international business is part of an orchestrated movement by the French government after Moscovici returned from a two-day business trip, in part to woo investors in China to invest more in France. French investment in China accounted for 13 billion euros ($17 billion) in 2011, Moscovici said.

Responding to Chinese investor concerns over the stability of France and the euro zone, Moscovici alluded to his country's most recent debt sale, at which strong investor appetite for French debt caused long-term bond yields to fall. This showed, he said, there was "huge confidence in the market in the French economy."

So far, though, this confidence has failed to translate into investment from China. French investments in China totaled more than 13 billion euros in 2011 but Chinese investment in France is only a quarter as much, Moscovici was keen to stress during his visit.

France's business climate has made business leaders jittery lately, with government policies widely viewed as "anti-business." France's trade deficit (65.83 billion in November 2012) and the country's negative growth outlook can be attributed to its loss of competitiveness, according to ratings agencies and the International Monetary Fund (IMF).

(Read More: 'Tide Turning' Against France)

The country's precarious economic position has not been lost on investors and economists. On Tuesday, France's finance ministry denied speculation over a downgrade to the country's already demeaned credit rating. Moody's and S&P ratings agencies have already downgraded France from AAA.

After rumors spread through Twitter over an imminent downgrade by Fitch earlier this week- the last of the ratings agencies to retain is AAA rating on France - the ministry said such talk was "unfounded and false."

Repairing Business Relations

France's attempts to beguile foreign business come after a turbulent 2012 in which the leftist government, under Francois Hollande, damaged business relations with government proposals for tax increases on businesses and high earners.

Hollande said he would cut France's budget deficit from 4.5 percent of gross domestic product in 2012 to 3 percent in 2013, mainly through tax increases rather than spending cuts. One of the more "symbolic" tax increases was a vaunted 75 percent tax rate on those earning more than 1 million euros.

The plan incensed high profile business leaders and high earners, who said it would deter foreign investment and saw French actor Gerard Depardieu renounce his nationality and homeland in protest.

(Read More: French Actor Depardieu Meets Putin for Passport)

The country's constitutional court put the final nail in the coffin of the 75 percent rate at the end of the year; finance minister Moscovici promised to revise the plans.

Socialist Hollande has further sought to repair business ties by agreeing to scrap increases in capital gains tax rises for small businesses, cutting red tape for new businesses and raising sales taxes (VAT) in order the appease companies operating in France.

A Not-So Bright Future for France?

The International Monetary Fund warned France last year that it needed to introduce labor market reforms and reduce labor costs in order to remain competitive. It warned then that a tax increase on the highest earners would not help the country to do this.

It repeated its warning in its latest report, published on December 21. France's growth outlook remained "fragile," with meager growth of 0.4 percent predicted for 2013.

"In this environment, growth is expected to…recover only very gradually to 0.4 percent in 2013. With job creation remaining subdued, unemployment is expected to rise further," the IMF's report stated, a worry for France's government dealing with a record unemployment rate of 11.8 percent and a populace straining under austerity measures.

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