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Hollande favors gradual reforms for French economy
Question of the Day
PARIS — The 35-hour work week? Untouchable. The social safety net? Untrimmable.
So how on earth can France's Socialist government keep its promise to make this country, and Europe, more competitive in the global marketplace?
Slowly and carefully, says President Francois Hollande.
After meetings with world finance chiefs last week, he acknowledged "there are measures to take" on reducing the cost of labor in France, among the world's highest; but he argued they "should be spread out over time."
Many economists say France could be running out of time, however, and the economic crisis could have repercussions beyond its borders.
Paris has allied with Berlin to manage the crisis in the 17-nation eurozone crisis, but France's huge state debts and chronic unemployment are making it look increasingly like struggling Spain.
The head of the World Trade Organization said that "it's particularly urgent" for France to loosen up its economy.
"This link among growth, competitiveness and jobs ... is the major problem of France and to a certain degree Europe right now," Pascal Lamy told Mr. Hollande at the meeting of the finance ministers.
The French government is hoping that gradual change is the way to go and that a series of private meetings and cautious public statements in recent days will mollify both fearful workers and employers who say it's no longer worth the cost to hire.
"It's not going to be a question of shocking or brutalizing the French economy," Economics Minister Pierre Moscovici said. "It's going to be continuous action, spread over our entire mandate."
After Mr. Hollande was elected in May, the Socialists' first response to France's lagging economy was to add a layer of government: the Ministry of Industrial Recovery. That failed to reduce unemployment or keep some of France's biggest corporations from announcing thousands more layoffs. They included carmaker Peugeot Citroen, Air France and retail giant Carrefour.
Mr. Hollande then asked one of the country's most respected businessmen, former Airbus chairman Louis Gallois, to spend months drawing up plans to make France more competitive. But the government swiftly distanced itself from the report, as news leaked last month about the report's recommendations, which included rethinking the controversial 35-hour week, shifting some of the tax burden to workers and cutting public spending.
"I'd advise against the idea of a shock, which has more of an attention-getting effect than a real therapeutic effect," Mr. Hollande said.
Without offering details, he added that he would prefer a "pact" among the government, workers and employers.
France has only to look south to neighboring Spain for reasons to go slowly with major labor reforms. Spain, facing the possibility of default on its debts, had little choice but to impose stark reforms, but the results have been dire. Tens of thousands of people joined anti-government protests as unemployment hit 25 percent.
France isn't in as bad shape as Spain. Its borrowing costs remain low, and the jobless rate is just over 10 percent.
However, it faces many of the same long-term problems: Rigid work rules, including the 35-hour week; high administrative costs; strict government oversight of layoffs; and generous severance when job loss is inevitable. Corporate profits end up being taxed more than 60 percent.
Since 1984, French unemployment has been below 8 percent for only 16 months.
Despite the official length of the French work week, employees actually labor on average about 40 hours weekly, according to several polls. Other surveys have found that even on vacation, a sizable number check in to the office.
"There's a maturation that is happening in French society, even if we still have leaders who can't admit it," said Gerard Dussillol of the pro-market Thomas More Institute.
The French, themselves, have their limits, especially when it comes to taxes. According to recent surveys, six in 10 French think the cost of labor is hurting the economy, but fewer than three in 10 think the burdens should shift to workers.
"When you take a pay stub in France and one in Germany, and you see it costs 25 percent more in France than in Germany, you don't need a study" to know which country will come out ahead, said Mr. Dussillol.
Meanwhile, Mr. Hollande and others fret about France's eroding share of global GDP, which has been cut in half to about 2 percent since 1990.
The heads of major French companies came together to demand that the government lower their labor costs by a total of about $30 billion over two years.
Economists are doubtful about real labor reform under a socialist government.
"The rest of the world continues to finance the French economy," said Jean-Christophe Caffet, an economist for Natixis.
Markets are starting to take notice.
Standard and Poor's downgraded France's largest bank, BNP Paribas, last month and lowered expectations for 10 others, citing high unemployment, lower domestic growth and the European recession.
"We've been in this kind of infernal machine for a long time," said Mr. Dussillol. "Certain economic systems are stable for years and then suddenly it falls apart."
By John McAfee
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