Föhrenbergkreis Finanzwirtschaft

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Emmanuel Macron’s Economic Plans for France Draw Pushback

Posted by hkarner - 11. Mai 2017

Date: 10-05-2017
Source: The Wall Street Journal

Proposals to free up labor market while preserving welfare state spark protest from powerful unions

French President-elect Emmanuel Macron has put economic policy at the center of his bid to reconcile France with globalization.

PARIS—French President-elect Emmanuel Macron wants to reconcile his country with globalization. The modest economic changes he is proposing to do so are already provoking resistance.

The victor in Sunday’s French presidential election ran as a reformer who would make France’s economy more competitive, lightening tax and regulatory burdens on business, while preserving its cherished welfare state. His progress, particularly in bringing down France’s stubbornly high unemployment, will make or break his presidency.

The 39-year-old centrist’s proposals reflect an effort to apply to France the lessons of successful overhauls in Germany and Scandinavia, which have managed to blend business freedoms and social protections better than most other countries. Achieving change will require taking on France’s powerful labor unions.

On Monday, a day after Mr. Macron’s win, unions held a march through Paris to protest his policies. “We need all the opposition in France to converge and get into battle formation,” said Romain Altmann, who took part as a member of the CGT, one of France’s biggest unions.Those demonstrations were meant to forcefully display what Mr. Macron is up against. “He has a colossal job on his hands,” said Maurice Lévy, chief executive of advertising giant Publicis Groupe SA . “Reforming the labor code is an indispensable reform and perhaps his most difficult challenge.”

Mr. Macron is no free-market radical. Some of his policies show a traditional French penchant for state intervention. In a stint as economy minister, he took steps to strengthen state influence at major French companies—including by increasing a government stake in Renault SA that effectively gave the state a veto power at the car maker.

His campaign promises to keep the minimum retirement age at 62, and to preserve the 35-hour workweek as a general guideline, disappoint some business people who say his reforms aren’t ambitious enough.

Bolder free-market policies have limited voter support in France, and Mr. Macron’s proposals may already test those limits. They include cutting tax on corporate profits and payroll taxes on lower-paid workers; limiting the cost of laying off workers; pressing unions to agree to flexible labor terms at company level; curbing the unions’ control of the country’s generous welfare system; and slightly shrinking the size of government.

Mr. Macron says he wants to cut the share of public spending in France’s gross domestic product to around 52%, from around 57% in 2015, in part by shrinking the civil service. He has also pledged to cut France’s budget deficit to well below 3% of GDP to comply with a European Union rule that France has frequently broken.

“The heart of his program is trying to solve some issues linked to the labor market,” said Raphael Brun-Aguerre, an economist at J.P. Morgan in London. “In his mind the labor market is dysfunctional: Labor costs are too high, and you don’t have enough flexibility. He links it also to education, where he argues many people are left aside because they don’t have the right skills.”

Mr. Macron’s most ambitious changes, if implemented in full, would mimic some Scandinavian countries’ mix of flexible labor markets, a universal social safety net, and government-sponsored training for people lacking marketable skills. Currently, France’s unemployment-insurance and pension systems are expensive yet patchy, offering stronger protections to employees in unionized sectors than to the self-employed or small entrepreneurs.

The hope, say advocates of such a combination of measures, is that it could make French workers more accepting of the disappearance of old industries and the rise of new ones, a process accelerated by globalization.

Changing France’s welfare state, while decentralizing labor negotiations to give companies more flexibility on pay and working hours, challenges the powers of France’s national union organizations, a formidable interest group that has repeatedly shown it can bring the country to a standstill. Departing President François Hollande scaled back proposals for changes to labor laws last year after strikes and protests. The changes were ultimately limited, drawing criticism from Mr Macron at the time.

‘The goals are clear. What is less clear is what he can achieve.’
—Raphael Brun-Aguerre, an economist at J.P. Morgan in London

Allowing companies to negotiate contracts with local union officials, rather than national union bosses who are often more militant, would echo German practices and require a major transformation of French labor relations.

Acceptance is growing in France, however, that changes are needed. Years of sluggish growth have left unemployment at a stubbornly high level of around 10%.

In a risky tactic, Mr. Macron wants to overhaul labor laws by decree this summer to save time. Union leaders accuse him of an undemocratic approach. He retorts that, under French law, parliament would have to later ratify his decree measures. “I’m explaining beforehand, I’m telling you, it’s democratic,” Mr. Macron told French radio last week.

“His program is aimed at helping companies better manage periods of lower activity and higher activity,” said Florence Aubonnet, a lawyer at Flichy Grangé Avocats who advises foreign companies in negotiations with their French employees. “It’s not a revolution, but he is clearly convinced that to fight against unemployment, companies must be able to adopt their own rules through local agreements.”

“The goals are clear. What is less clear is what he can achieve,” said Mr. Brun-Aguerre. The key, he added, will be France’s parliamentary elections next month, in which Mr. Macron is seeking a majority for his new party, En Marche.

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