France’s Hollande Unlikely to Risk More Reforms Until 2017

The French president must avoid splitting his party with liberal economic reforms as he seeks reelection.

Elections in France this year and next could doom any chance of deeper economic reform even as the country seems incapable of bringing down unemployment.

Stuck at over 10 percent since he came to power in 2012, the high jobless rate has weighed down on President François Hollande’s popularity. With an approval rating under 20 percent, the incumbent seems unlikely to win reelection in 2017. But he is still running and should want to avoid dividing his Socialist Party on economic policy.

The next regional elections are due in December. Called after a reorganization that saw the number of regions cut from 22 to thirteen, the Socialists are gearing up for another defeat. They have lost all local elections since Hollande beat the conservatives’ Nicolas Sarkozy in 2012 with 51.6 percent of the votes.

Party unity has been tested by Hollande’s late conversion to liberalization.

Earlier this year, he allowed his centrist prime minister, Manuel Valls, to push reforms through parliament that shorten labor arbitration procedures, weaken protections of some professions, such as pharmacists and notaries, give coaches the right to compete with intercity trains and shops the freedom to open on more Sundays.

The left was unimpressed. Martine Aubry, one of Hollande’s opponents in the 2012 Socialist Party primaries and the architect of France’s 35-hour workweek, sneered, “Has the left now got nothing else to suggest for the organization of our lives than a Sunday walk in a shopping center?”

To avoid spitting his party, Valls made use of an arcane constitutional prerogative that let him force the reforms through without a vote, daring the opposition to introduce a motion of no-confidence that was predictably defeated.

He could use the same power to enact labor reforms that are bold by French standards but would do little to mend a divide between typically young workers with insecure jobs and older, unionized workers who are almost impossible to fire.

Valls wants to allow employers to renew short-term contracts twice, rather than once, and give them a €4,000 bonus when they hire their first worker.

The measures should help trim unemployment. Temporary work contracts now account for 80 percent of the jobs created in France.

But simplifying and shortening layoff procedures — something France has been urged to do for years by the European Commission and Organization for Economic Cooperation and Development, among others — would do far more to encourage hiring.

That is a bridge too far for Hollande. After giving businesses €40 billion in tax relief, his 2012 election promise to soak the rich already rings hallow. Touching long-term contracts and their generous benefits risks angering the trade unions, whose support he needs in 2017, and would see the Socialist Party split.

The Greens have already quit Hollande’s coalition. Other far-left parties refused to back him in the most recent local elections, allowing Sarkozy’s conservatives to take over control in 28 départements.

Valls insists there is no time to waste. Excessive regulations and high social security contributions from employers hinder labor mobility and add to France’s labor costs which, at €34 per hour, far exceed the European average of €23.

Relatively high productivity at least partially justifies the higher costs of French workers but that is no consolation to the millions who are out of work.

However, growth is finally picking up. The French economy is projected to expand 1.1 percent this year and 1.7 percent in 2016. Hollande may be betting that this will be enough to finally bring down unemployment and give him a fighting chance in what is likely to be a rematch of his 2012 contest with Sarkozy. Companies may have to wait another two years before they see another round of reforms.