Strikes upset France’s reform calculus

May 24, 2016

 The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.

French labour reforms are sparking a wave of social unrest that could mess up President Francois Hollande’s calculus. The measures were supposed to improve the economic prospects of a country that has slipped down the World Economic Forum’s global competitiveness rankings over the past decade to 22nd. The backlash could, however, water down their benefits.

Anti-reform strikes have spread to French ports, oil refineries, and railways, while blockades of fuel supply depots have forced some petrol stations to ration motorists. The longer this drags on, the bigger the short-term risks to growth in the euro zone’s second biggest economy. This would be a price worth paying for a root-and-branch reform that would make employers more willing to hire. But it’s not clear whether this is the case.

Hollande’s government forced a raft of reforms through parliament, including provisions for working time agreements to be negotiated within individual companies rather than across sectors. But other elements of an initial proposal were dropped. For example, there is less clarity than originally envisaged of how much it will cost employers to fire workers. This is likely to dilute the impact of the reform on businesses’ willingness to hire new employees.

If labour unrest grows it would deter investment, especially from abroad. France is one of the top 10 foreign direct investment destinations in Europe but the only one of the number to see a decline in the number of projects in 2015 compared with a year earlier, according to a report by EY. In general, inflexible labour markets, high labour costs and complex tax regimes are all turn-offs, according to the consulting firm’s latest attractiveness survey which assesses how appealing countries are as investment destinations.

Finally, there are political risks. Growing discontent with Hollande and his Socialist government will exacerbate a more general dissatisfaction with France’s two mainstream parties. This could push more voters into the arms of the far-right National Front, which has a far more protectionist stance as well as being anti-euro. Hollande may have good intentions, but he is gambling with more than his own political future.

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