France Inc. Lauds Macron's Plan to Loosen Labor Rules

By Nick Kostov and Stacy Meichtry Features Dow Jones Newswires

AIX-EN-PROVENCE, France -- French President Emmanuel Macron's plans to loosen rigid labor rules drew praise from business leaders attending an annual summer retreat, even as some warned the measures will take time to lower the country's chronically high unemployment.

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French business elite gathered in sun-kissed Provence this weekend described an air of "Macron-mania" as many of the corporate chieftains who backed the presidential campaign of the former investment banker lauded his proposals to make it easier for firms to fire and hire staff.

"We're very keen for there to be change," said Ross McInnes, chairman of aerospace firm Safran SA.

Mr. Macron is counting on France Inc. to open its purse strings, betting that private-sector hiring, rather than public spending, will fuel France's recovery. The overall unemployment rate is nearly 10% and about a quarter of young people are jobless.

However, some managers struck a note of caution, saying firms that have long avoided investing in France could still take years to rev up their activity. Many are on standby until September when Mr. Macron is expected to pass the labor measures into law.

"The fruits of the reform will not come in one year. They will come after two or three years," said Antoine Frerot, chief executive of water and waste management giant Veolia Environnement SA.

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The time frame illustrates why previous French governments have balked at taking the bitter medicine of labor market reform.

Since the start of the 2008 financial crisis, Germany and European regulators have demanded that countries along the bloc's Mediterranean rim boost their competitiveness by stripping away rules protecting workers from being fired, even in an economic downturn. Doing so would lower costs and legal uncertainty for firms and encourage them to hire, European officials say.

Left-wing unions, however, say such measures risk opening the floodgates for massive job cuts.

Economists have credited overhauls in Spain for helping its job market recover, but results have been mixed elsewhere. Mr. Macron wants to avoid the fate of another European centrist, former Italian Prime Minister Matteo Renzi, who was counting on his own overhaul of labor rules to spur a job market recovery. Instead, Italy's jobless rate has remained stubbornly high, and Mr. Renzi resigned last year.

Mr. Frerot estimates he added about 100 workers to Veolia's 2,000-strong staff in Italy after the Renzi overhaul, which he says allowed the firm to take on short-term contracts because it could hire staff on flexible terms to complete them.

"I'm only comfortable accepting this business if I know I'm not taking too many risks," he said.

Unlike his Italian counterpart, Mr. Macron has some economic wind in his sails. The Bank of France recently raised its forecast for economic growth to 1.6% of gross domestic output.

Some business leaders also are chafing over signs the Macron government wants to delay cuts to payroll and wealth taxes by one year in order to make up for overspending by the previous administration.

One French business leader said he was disappointed the lowering of the wealth tax would no longer coincide with the government's plan to privatize its stakes in large French companies.

"It would have meant a river of money coming from frozen assets in real estate and going into capital markets," the business leader said.

On Sunday, the government tried to assuage those concerns as Finance Minister Bruno Le Maire told reporters in Aix-en-Provence that no "definitive decision" had been made on when the tax cuts will take effect.

"I think we can perfectly reduce public spending very significantly to meet our European commitments and at the same time cut taxes for French households and French companies," he said.

(END) Dow Jones Newswires

July 09, 2017 15:00 ET (19:00 GMT)