Failure to reduce French labour costs 'catastrophic' - SME chief

PARIS (Reuters) - Small French companies face catastrophic consequences if President Francois Hollande's government does not follow through on a pledge to lower labour costs sharply within two months, the head of the country's largest association of small and medium-size companies said on Thursday.

Hollande vowed in January to help struggling companies by slashing some 30 billion euros (24.1 billion pounds) from their labour costs and bringing down corporate taxes, in exchange for their committing to hiring targets.

But Jean-Francois Roubaud, whose CGPME represents more than half a million chief executives, said the hiring targets were unrealistic and more companies would shut down unless Hollande reduced labour costs rapidly.

"If strong measures aren't taken within two months, if we realize that the announcements sounded good but in fact were empty, that will have catastrophic consequences," Roubaud told Reuters in an interview. "Chief executives are likely to despair completely, and Hollande is aware of that."

Hollande told trade unions and employers, represented by the Medef and CGPME groups, to reach agreement on the terms of his so-called "Responsibility Pact" by the end of March, so that a revised budget plan could be sent to parliament in September.

But the Socialist president did not go into detail on how social charges would be cut, except to suggest that company contributions for family allowances, amounting to some 25 billion euros per year, could be scrapped.

Talks have yet to determine how the difference would be made up, and the parties have locked horns on the idea of hiring targets. Roubaud's CGPME rejects them and the larger MEDEF employers group says they are unworkable.

"Is (Hollande) able to overcome political opposition, to say, 'I rule by decree, this is what we are doing?'" said Roubaud, who accompanied Hollande on a trip to Turkey last month. "That's what I am expecting... In two months, we'll see."

'SME DESPAIR'

Small companies, frequently overlooked in a country dominated by large multinational corporations, suffered the brunt of the economic crisis. It has choked off credit to many, causing psychological distress among chief executives.

"Four hundred chief executives are committing suicide each year because of the despair they feel when they have to shut down and fire workers, losing everything," Roubaud said. "This (reform drive) is a last chance for many of them."

Roubaud was referring to figures published by Amarok, a think tank for non-wage-earning workers, which says that one or two chief executives of SMEs commit suicide each day.

Credit is plentiful in France relative to neighbouring countries, but many companies with fewer than 50 employees are locked out of loans because to lend to them, banks must follow more stringent regulations and require higher collateral.

In 2013, some 44,000 SMEs filed for bankruptcy protection, or 2 percent more than in 2009 at the height of the global financial crisis, according to the credit insurer Coface.

"The companies that are folding often lack 5 or 10,000 euros, which is nothing compared to the cost of supporting unemployed workers," said Roubaud, who is also pushing for an overhaul of the state jobless benefit system.

To discuss job creation, companies needed lower labour costs, looser rules on hiring and firing and corporate taxes reduced to the European average of 24 percent, versus the current rate of 33 percent.

"Before we discuss counterparties, let's see what is on the table," Roubaud said. "It's not just labour costs but the labour code as well which is a huge brake on hiring - we need to find ways to make the market more flexible." ($1 = 0.7359 euros)

(Reporting By Nicholas Vinocur; Editing by Larry King)