Valdis 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.
Dombrovskis had difficulty keeping up with his busy schedule in Paris on Thursday (31 March), where he attended a meeting with the OECD, lunch with the Minister of the Economy Emmanuel Macron and dinner with the Minister of Finance Michel Sapin. The Latvian, who is one of seven vice-presidents in the Juncker Commission, was held up by public transport strikes and other demonstrations against the French labour law reforms, currently being carried through the legislature by the Minister of Labour Myriam El Khomry.
With France still under a Commission-imposed excessive deficit procedure, labour reform is a highly pertinent subject. El Khomry’s initiative “will address the rigidities of the labour market and should boost employment,” Dombrovskis told a group of journalists. The Latvian Commissioner, who shares responsibility for economic affairs with the French Commissioner Pierre Moscovici, is known for his liberal economic views.
In its annual country report on France, published at the end of February, the Commission dedicated around ten pages to the French labour market, which it considers the biggest obstacle facing the country’s economy.
But on this day of demonstration and popular opposition, Dombrovskis adopted a magnanimous attitude. “We are paying close attention to the political debate and we understand that this bill must strike the right balance,” he said, referring to the measures already withdrawn from the bill, notably those on trade union negotiations.
It is clear that these proposed reforms are a direct response to demands from Brussels, as they follow very closely the executive’s own analysis of the French economy. According to the 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, rather than other factors like a chronic lack of investment or the shift towards a more automated service economy.
“Unemployment in France has stood at 10% for too long. The country needs to commit to a rapid reform process,” Dombrovskis said. The Commissioner also stressed that the country’s 2016 growth forecast of just 1.3%, significantly lower than that of the eurozone as a whole and the EU average, which is closer to 2%, would harm its economic progress.
This view is not shared by everyone, particularly on the left. The economist Thomas Piketty wrote in his blog that unemployment was below 7% before the 2008 financial crisis, and blamed the current poor statistics on an inadequate effort to relaunch the economy and the weak handling of the crisis.
Cyclical deficit reduction
The Commissioner also highlighted the importance of deficit reduction and welcomed France’s faster than expected progress: Paris finally seems on track to meet its 2016 objective of cutting its deficit to 3.4% of GDP, the first time it will have met a target in several years.
But this deficit reduction has more to do “with cyclical than structural factors”, the Latvian Commissioner conceded, adding that he was concerned about other decisions that could undermine this progress. Low interest rates may have cut the cost of debt, but other factors may still upset the balance of the budget, like the fact that Paris has chosen to take its dividend from EDF in shares, rather than in cash, and a planned civil service pay rise scheduled for July. Both of these changes will reduce the funds available to the state.
Taking into account the negative economic impact of the terrorist attacks that hit France last November and Belgium this March, Dombrovskis recalled that a certain amount of flexibility was built into the Stability and Growth Pact for just such exceptional circumstances. The refugee crisis is another such circumstance that has already been considered in the evaluation of national budgets for 2015 and 2016: the extra spending generated by this crisis will not be taken into account in the Commission’s deficit calculations. The lion’s share of Europe’s financial burden related to the hosting of refugees has so far been borne by Germany, which has no public debt problem.