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The civil war in France
It hardly matters who wins this battle, says Matthew Lynn. The French economy will remain dysfunctional with or without President Hollande's reforms.
Fuel is running low. The airports are closing down. Riot police have been called out to keep transport networks open. In Paris there have been violent protests and running battles with the police. The Euro 2016 tournament, due to start next week, is under threat. France is tearing itself apart over labour market reforms. The ferocity of the protests might lead you to think that something vital is at stake that President Franois Hollande has gone full-Thatcher and is radically deregulating the economy.
Yet to outsiders, it is hard to see what the fuss is about. With the 35-hour week, generous parental leave, long holidays, and employment protection that makes it virtually impossible to fire anyone, France is already one of the best countries in the world to be an employee and one of the worst to be an employer. Nothing about the reforms will change that.
The 35-hour week remains in place. Firms will be able to ask staff to work up to 46 hours occasionally and 60 in exceptional circumstances, but they will have to compensate them with shorter hours in the weeks afterwards, so that over any three-month period they still only average 35 hours.
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How about firing people? Companies are wary of hiring people if they don't think they can get rid of them fairly easily. So the reforms will free that up, right? Not exactly. If a firm wants to lay off any staff, it will have to prove it is loss-making, or that its sales are falling steadily. How will that work? A company with up to 11 staff will have to show a loss or a drop in orders over one trimester. If it has between 11 and 50 staff, it will have to show a loss over two trimesters. And so on, until it becomes virtually impossible for the bigger companies to lay off anyone at all.
On top of this, judges will have the power to inspect the books to make sure a business hasn't artificially inflated orders in the previous period, just so it can fire a few people later on. It is all so fiddly and restrictive that it will most probably deter companies from hiring anyone at all.Some of the reforms will actually make the system worse. Take French payroll taxes, which can add 30% or more to the cost of employment.
Those will rise on temporary contracts to prevent employers from using these instead of permanent positions even though those kinds of contracts have helped cut unemployment significantly in Spain, for example. That was a concession offered to appease strikers, although so far it does not appear to have helped. Likewise, the proposed limits on compensation for redundancy have been lifted.
True, there has been a modest cyclical upturn in France. It grew by 0.6% in the last quarter, making the government's target of 1.5% growth over the whole year achievable. Yet that was only the second quarter in the last three years where growth rose above 0.5%. Compared with Britain or Germany, France remains in a terrible state. Unemployment is at record levels, and has not dipped below 9% in almost 30 years.
Meanwhile, the state gets relentlessly bigger now consuming 56% of GDP, close to the level where it is debatable whether it can really be classed as a capitalist rather than a socialist economy any more.
Nothing Hollande is doing changes any of that. It hardly matters who wins this battle the economy will remain dysfunctional. At some point, France will have a battle over whether it wants to revive its economy with free-market reforms or accept permanent decline but this isn't it.
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Matthew Lynn is a columnist for Bloomberg and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
