Europe watches closely as France unveils ‘mother of all reforms’

French President Emmanuel Macron (R), flanked by his dog, a labrador crossed griffon named Nemo (L), greets German Foreign Minister Sigmar Gabriel (C) upon his arrival at the Elysee Palace in Paris, France, 30 August 2017. [Alain Jocard / EPA-EFE]

The French government unveils on Thursday (31 August) a highly anticipated labour reform plan seen at home and abroad as a crucial test of new President Emmanuel Macron’s reform mettle.

Aimed at making it easier to hire and fire workers in order to fight stubbornly high unemployment, it will cap dismissal awards, allow workplace referendums and extend the list of issues bosses can negotiate directly with their staff.

The first major reform since Macron was elected in May on a pledge to shake up a sluggish economy, the plan is set to be followed by further difficult bills in the next months, including on pensions, unemployment benefits and public finances.

Governments of all political stripes have for decades tried to overhaul complex labour rules in France, where the labour code now runs more than 3,000 pages. But they have eventually watered down plans in the face of street protests.

“This is the mother of all reforms; we’re well aware of that,” Finance Minister Bruno Le Maire told France’s main employers’ federation on Wednesday (30 August).

EU scrutiny

The reform is seen by French officials as essential to reassure their euro zone partners – and chiefly Germany – that Paris is serious about reviving its economy, which they hope could then help convince Berlin to agree to French plans for a eurozone budget.

German Foreign Minister Sigmar Gabriel said on Wednesday during a visit to Paris that he was “impressed” by Macron’s labour reform plan. “I am certain this will help you get stringer economically and socially,” he told reporters.

France’s efforts to overhaul its rigid labour market will also come under close scrutiny in Brussels, where the European Commission has placed Paris under an excessive deficit procedure.

In its annual country report on France, published in February last year, the European Commission dedicated around ten pages to the French labour market, which it considers the biggest obstacle facing the country’s economy.

According to experts in Brussels, France’s weak job creation and slow economic growth are down to the structural rigidity of its economy, particularly the difficulty employers have in laying off staff.

Commission backs French labour law reforms

Vladis Dombrovskis, the European Commissioner for the Euro and Social Dialogue, has welcomed France’s controversial labour law reforms, which directly respond to the EU executive’s criticisms of the French economy. EURACTIV France reports.

Declining popularity

Macron’s government will face an uphill struggle to get the reforms adopted, with opinion polls painting a mixed picture of voters’ views.

While 60% are worried by the upcoming reform overall, when looking at specific measures, some 61% agree that bosses should be able to put deals to a referendum in their firm. Just over 50% back making short-term work contract rules more flexible, according to an Elabe poll.

However one key measure, capping compensations for unfair dismissal, is deeply unpopular. 62% of those surveyed are opposed to it.

The labour reform, which was announced by Macron during his election campaign, will be unveiled at a time when the 39-year-old president has suffered a steep drop in popularity ratings.

Early policy announcements including an overhaul of the wealth tax and cuts to housing assistance have left a swathe of voters feeling Macron’s policies favour the rich, pollsters say.

But officials said the government feels entitled to push ahead with the reform even if protests arise because the plan was in his presidential manifesto.

Macron on course for clashes with unions over labour reform

The French government this week entered the home straight in its preparation for labour market reform. This flagship project of Emmanuel Macron’s young presidency will provide an explosive end to the summer holidays. EURACTIV’s partner La Tribune reports.

Make or break

“We didn’t take anybody by surprise,” a source close to Macron told Reuters, adding this was different from Macron’s predecessor, the Socialist François Hollande, who made an unexpected pro-business switch two years into his mandate.

In any case, lawmakers have already given their okay to the government to adopt the measures by decree without submitting them to parliament.

In an interview with weekly magazine Le Point, Macron insisted he would stick to his labour reform plan and would “profoundly transform the economy, society and the political landscape,” saying opposition to this came from “old parties, old politicians, and their allies.”

France’s employers’ federation said the labour reform would make or break the Macron presidency.

While the country’s second-largest union, the CGT, has announced nation-wide protests on 12 September, the third-largest union, Force Ouvrière, unexpectedly said on Wednesday that it liked part of the reform and would not take to the streets that day, in a relief to the government.

The far-left France Unbowed party of Jean-Luc Mélenchon has planned another day of protests on 23 September.

Background

In 2013, European Union finance ministers gave France a two-year extension to bring its deficit below the EU ceiling of 3% of GDP.

Paris was asked to cut labour costs, reform its pension system and open up its protected markets in exchange for the two-year respite.

The reforms were suggested as part of the European Commission's economic policy recommendations, which are sent to member states each year.

> Read: Barroso urges ‘credible reforms’ in France in return for deficit grace period

However, France declared it would not meet the 2015 deadline, and would only hit the target in 2017.

After examining the situation, the Commission proposed giving the country another two-year extension, until 2017, calling on France to bolster efforts to get its budget back in order.

This triggered sharp criticism from EU budget hawks, such as Germany's centre-right. “If the Commission is too flexible on the growth and stability pact (budget rules) for political reasons – it has to be aware there will be consequences,” said Wolfgang Schäuble, Germany’s Minister of Finance.

> Read: France wins EU approval for two-year reprieve on deficit

The European Commission has ruled out bending the rules a third time.