European Affairs

If one word could explain the situation it would be “transition.” France is a country in transition. Transitioning from a centralized, highly regulated economic system dominated by the government and the public sector to become a more decentralized, flexible open economy liberating energies-- but not yet sure that it is ready to exchange old advantages for new ones. The public sector employees, who are entitled to numerous special benefits, do not want to lose them. But for the private sector, the world is changing and more flexibility is necessary to be able to perform. Meanwhile, a large portion of the population depends on social benefits, as a result of the deterioration of the labor market. (3 million are officially unemployed and compensated by the government; and many more people are just not working.)

France is a dynamic country, gifted with efficient entrepreneurs, innovative start-ups, and an audacious young elite performing internationally. But the country is under the control of a political elite traditionally trying to resolve every problem by using public money. The result is a large budget deficit, a national debt above the European Union’s target level of 3% of GDP, and a high level of taxation. These combine to make France less attractive for businesses. In spite of all that, the country remains the fifth largest exporter in the world, a performance that is not so bad for only 60 million inhabitants, and its business activities across the globe remain very dynamic.

However, for France (and local politicians and trade unions) the choice is now between joining this dynamic group open to the outside world and innovation and willing to change existing labor rules or fighting to maintain the status quo and even increasing the protections for those who are already the most protected--namely, public employees with special status defended by powerful unions, and private employees whose jobs are guaranteed by contracts of unlimited durations.

In this context, the labor market cannot properly recover because employers, knowing the difficulty of firing employees in case of difficulties and considering the cost and complexity of labor laws, prefer not to hire, or hire for very short periods of time for which legal protection of employees is much lighter. This perpetuates social insecurity and unemployment.

Who is responsible for the strikes?

CGT (Confédération Générale des Travailleurs), the union, which dominates the public sector, started the movement and “radicalized” it. Is the union acting from strength? On the contrary its conduct probably reflects the weakened state of the CGT. It used to have 3 million members in the fifties, when it was linked to a powerful communist party. With the decline of the communist party over the last 30 years, it has lost its political compass, but maintained its original attitude of opposition to employers. Thus its membership has now fallen 700,000 while another union, CFDT, more inclined to negotiation, is in the process of reaching the first place in the professional elections held in companies. The outcome of these elections is very important because it provides the basis for collective bargaining nationally. That is one key reason why the CGT wants to demonstrate that despite its spectacular decline in the last decade, it is still able to shut down the country. Whether the right to strike includes a right to take the population hostage is an open question that has not been legally and politically settled. For the first time, workers prevented from working by unionists on strike, and entrepreneurs losing money because of the behavior of strikers around them, are considering bringing suit against the people and the organizations responsible for the damage.

What is the nominal cause of this set of demonstrations?

Officially, the reason for the movement is opposition to a bill increasing the flexibility of labor laws. Observers note that while this bill can justify opposition on the part of the unions, it is also a pretext for the CGT to show the extent to which it will go to defend its positions. If it were not for this law, there would be something else: the CGT needs to make a demonstration of force.

Observers also consider that the government is in large part responsible for the situation. It waited much too long after the election in 2012 to come up with structural reforms of the labor system –reforms which have been called for by the European Commission for a long time. The preparation for the bill was poor. No proper negotiation with the social partners was initiated on the bill whose original version included measures that damaged established union interests. The bill has been revised to the point where it has lost much of its original “raison d’être.” At the end of the process, the remaining “article 2,” which would give preeminence to agreements negotiated within enterprises over agreements negotiated on a sectoral basis, is considered a casus belli by the CGT. The CGT is more powerful in representing employees in large sectors and public companies than in small and medium companies, who now request a new degree of autonomy in their social negotiations.

To make things worse, the government brings this project forward at a moment when the President is weak (his recent rate of approval is around 17%). Behaving as a potential candidate for reelection in the 2017 presidential election, François Hollande is expected by the organizers of the strikes to fold, both nationally and in the context of specific negotiations going on in companies such as the national railway company SNCF. The SNCF’s president has complained that worker benefits make it difficult to stay competitive. To avoid another conflict with the management of SNCF, the government is on the verge of taking over a large portion of the company’s debt. The bottom line is that workers from large public companies will continue to be granted special treatment as compared with workers from the private sector. To the displeasure of the European Commission, the French budget deficit is already 70 billion euros a year and the overall debt is 2.1 trillion euros, 95.7% of the French GNP. If interest rates go up France will encounter difficulties paying the interest on its debt. For now, worries are limited, in part because it is not this government, but its successors, who will have to pay for the cost of the “redistribution” wave that the socialist government has been engineering in recent months to limit public discontent, restore calm during the football championship and, if still possible, mollify the president’s electorate before the next election.

The number of tourists and the associated revenues decreased by some 5% in 2015 as compared with the previous year, in part because of the fear of terrorism. That decline is likely to be even worse if the strikes and social unrest persist. Investments by foreign companies, while increasing by 12% in Europe have decreased by 2% in France with little increase expected in 2016. Even French companies, such as global energy giant Total, whose loss because of the strikes in the refineries is over 80 million euros, is reconsidering an investment of 2 billion euros in France that it had previously announced. European partners, starting with Germany, worry that the government of France, unable to promote reforms and control the situation, will continue to grow the deficit, and ultimately, will weaken the euro.

A small silver lining comes because the stark realities of continued high unemployment have convinced a growing part of the population, whether the CGT and its allies like it or not, that it is necessary to make French labor laws more flexible, and to make its companies more competitive. There is also growing recognition that the French unions represent only 8% of the working population. Recent polls showed that 67% of French people have a bad opinion of Philippe Martinez, the Head of CGT who is faulted for systematically opposing change (84%), being heavily politicized (75%), and remaining far from corporate economic realities. 66% say they fear the ability of CGT to paralyze the country. Thus, it is only a matter of time for the relative strengths of the various labor organizations to evolve and give more powers to other unions such as the CFDT, who tend to negotiate rather than oppose, and whose role may become more comparable to German unions.

Economic reality being what it is, France will not be able to escape the necessity of modernization. The bad news is that France, compared with Germany and Britain, suffers a serious handicap for arriving late to this vital evolution.


Jacqueline Grapin is Founder of The European Institute and Co-Chair of the Board of Directors, writing from Paris.

 

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