PARIS – President Emmanuel Macron unveiled a labor overhaul Thursday that elicited muted criticism from France's traditionally combative unions, a pivotal step in the young leader's drive to revive the economy and shore up the European Union.
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The changes, which the government plans to pass by decree later this month, revise a thicket of rules and worker protections that businesses say discourage them from hiring and make it difficult to negotiate conditions with employees.
Their unveiling marks a moment of truth for Mr. Macron, who has swiftly lost public support since he swept into office four months ago. The new leader has been consulting with France's unions for months in a bid to contain street protests that undermined previous efforts to lower France's chronically high unemployment. Those came as other countries such as Spain and Germany managed to usher in changes credited with helping their economies.
The most contentious measures include a cap on court-ordered fines employers can face for layoffs, and a provision that allows small companies to negotiate directly with non-unionized workers.
Union leaders who met with the government Thursday were critical but stopped short of all-out opposition. CFDT Secretary General Laurent Berger said he was "disappointed" with the changes. In a victory for the government, however, Mr. Berger said France's largest union wouldn't join a street protest planned by the far-left CGT union on Sept. 12.
"We will remain extremely vigilant in the months to come," he said.
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The stakes are high for Mr. Macron because he has made changing labor rules a condition for reaching a "New Deal" with Germany and other European countries to revamp the economic bloc's architecture and equip it with shared financial backstops to resist economic shocks.
It is also a starting point for his plans to reboot France's sclerotic economy, from changes to the welfare and pension systems to government spending on housing and jobs training.
"My wish isn't for this to be easy, but for it to be effective. The reform of the labor market is a reform of deep transformation," Mr. Macron said in an interview published Thursday with French magazine Le Point.
Europe is watching closely. Over the last decade, France has slipped behind other major economies in the currency bloc, racking up wide trade and budget deficits and high, long-term unemployment.
Mr. Macron blames successive French leaders for failing to emulate Germany's shift to become more competitive with changes to its welfare state and labor rules in the early 2000s, under the leadership of then-Chancellor Gerhard Schröder.
Economists say that by making hiring and firing less risky, employers are likely to hire workers on longer-term and invest more in new projects. That in turn could boost productivity and fuel economic growth. French unemployment stands at 9.5%--more than twice the rate in Germany.
"It is clearly a package that can help France catch up," said Stéphane Carcillo, an economist specializing in labor at the Organization for Economic Co-operation and Development, which has long called on France to change its labor system.
A more competitive French economy, Mr. Macron says, would pave the way for Germany and other wealthy eurozone economies to boost spending and fund financial backstops to shelter the currency union from a repeat of the debt crisis that has hammered southern European countries in the last seven years.
Getting France's labor leaders on board with the plans--or at least persuading them not to stand in their way--has been a high priority for Mr. Macron.
Since taking office in May, Mr. Macron and his aides have held 40 separate meetings with union leaders. Of the main unions, only the far-left CGT is calling for strikes and demonstrations, the first scheduled for Sept 12.
Since taking office, however, Mr. Macron has shed support after adopting what critics say is an authoritative and aloof governing style. Unpopular budget cuts combined with tax cuts for the rich have sent his approval rating spiraling further and faster than previous presidents, and French people are becoming increasingly critical of the labor overhaul.
A survey by polling company Odoxa Aug. 24 and 25 showed a majority of French people agree the labor code discourages companies from hiring, but 63% don't trust Mr. Macron and the government to make the changes and 80% expect widespread resistance in September.
The slump is fueling concerns among lawmakers who came to power in June's legislative election under the banner of Mr. Macron's upstart centrist party En Marche--or On the Move.
Mr. Macron and his party campaigned on a promise to transcend partisanship. If unions dig in for a fight, however, the left-right divide could deepen, fueling public frustration and support for politicians like Marine Le Pen of the far-right National Front who Mr. Macron defeated in a presidential run-off.
Jean-Luc Melenchon, the far-left firebrand who leads one of the biggest opposition parties in parliament, has called for a separate protest on Sept. 23.
"It would be awful to lose the public opinion battle on the labor reform because it is an important political marker for us, it is part of our philosophy," said Aurélien Taché, a 33-year-old lawmaker in Mr. Macron's party and whip for social affairs in parliament.
French unions have historically wielded strikes to paralyze the country and mobilize tens-of-thousands of workers in protest. Massive demonstrations have led to violent clashes with police, causing Mr. Macron's predecessors--from conservative Jacques Chirac to socialist Francois Hollande--to back down.
On Thursday, Prime Minister Edouard Philippe described the union response as "nuanced," adding: "There would be nothing worse than to sum up a position as disappointment while there are also positives."
Write to William Horobin at William.Horobin@wsj.com and Noemie Bisserbe at email@example.com
(END) Dow Jones Newswires
August 31, 2017 09:57 ET (13:57 GMT)