Corporate
Europe Observatory
The current
struggle in France over labour law reforms is not just between the
Government and trade unions – a European battle is waged. The
attacks on social rights stem in no small part from the web of
EU-rules dubbed 'economic governance', invented to impose austerity
policies on member states.
Strikes and
actions across France against reforms of the country’s labour
protections, known as the El Khomri Law, demonstrate the immense
unpopularity of the measures proposed by the French Government.
Chiefly among them, to give preference to local agreements on wages
and working conditions, when the conditions in those agreements are
less favourable than the national norm inscribed in national law.
This is an open attempt to undermine collective bargaining and roll
back the influence of trade unions.
Ultimately,
the French Government has formal responsibility for the weakening of
labour protection. But there is no denying that the European Union is
playing an important and perhaps decisive role in the attacks on
labour rights. What we see is the EU throwing its rulebook in the
French workers’ faces. Practically all the new rules on so-called
'economic governance' adopted following the eurocrisis have been
applied, and make France look like a EU test-case. The European
Commission, with the backing of the Council, has used the rules on
member states’ deficits to exert pressure, threatening with
sanctions, should the French Government not give in and seriously
reform its labour laws. Simply put, France has been required flat out
to ensure higher profitability for businesses by driving down wages.
How does all
of this work?
Sanctions
more likely today
First and
foremost, the reforms in France are related to the country’s
deficit. Like most other EU member states, the state’s finances
looked pretty bad in the aftermath of the 2008 financial crisis. In
2009, a case was opened against France for breaching EU rules which
stipulate that its deficit must be no higher than 3 per cent of GDP.
If taken to the extreme, this 'excessive deficit procedure' can
result in a fine of billions of euro, and – not least in the case
of France – a severe loss of face to its EU partners.
The
'excessive deficit procedure' was given more teeth with the so-called
'Six-Pack' set of EU rules in 2011 – a key part of the
austerity-focused economic governance package – which introduced a
reverse majority vote in the Council: if the Commission does decide
to fine a member state, like it has threatened to do to France, there
will have to be a qualified majority against the measure from other
member states to block it. Good reasons for the French Government to
be slightly scared – and a weapon to be used in its attempt to
convince parliamentarians. The likelihood of sanctions for not
meeting the budget deficit targets is much bigger than in the past,
when both Germany and France escaped humiliation. But how to meet the
Commission’s strict targets, and how to behave to the satisfaction
of the Commission, is what clearly links the El Khomri law in France
to the austerity regime being rolled out from Brussels.
Enabling
demands of 'structural reforms'
Being 'in
the procedure', means you’re under close surveillance by the
Commission, and with regular intervals, the case of the French
deficit has been brought up at meetings with member states ministers,
who have assessed if France (in this case) has made sufficient
efforts to remedy the problem. Specific recommendations have been
made, though until 2013 the labour law was hardly mentioned. The
recommendations stuck to the development of the deficit, whether it
went down at the required pace. But in 2013, there was a new tone in
the Commission’s recommendations. France was asked to meet its
deficit targets “by comprehensive structural reforms” in line
with recommendations from the Council “in the context of the
European Semester”. Structural reforms are no small matter. They
are defined as changes that affect “the fundamental drivers of
growth by liberalising labour, product and service markets”. Such
ambitions were starting to be pushed on France at the European
Semester.
But what is
the European Semester? It is a procedure involving the Commission and
the Council that ends with a set of recommendations for reforms to
each and every member state, based on a proposal from the Commission.
At the beginning in 2011, the recommendations were non-binding, but
in 2013, a new set of rules went into force under the so-called
Two-Pack, another part of the economic governance package intended to
enforce austerity. One of the regulations of the two in the package
was about measures to ensure deficits were corrected, and among other
things, it made a link between the deficit procedure and the European
Semester. If a member state is under the deficit procedure – like
France – it would have to draw up an 'Economic Partnership
Programme' that includes the recommendations from the Council
–typically the kind of structural reforms that would have a clear
impact. If the programme is not followed, then it will have a bearing
on the Commission’s decision to initiate the final phase of the
deficit procedure: sanctions in the form of a fine worth billions.
So, when the
Two-Pack entered into force in early 2013, the tone of the messages
to France on its deficit changed. France was now asked to implement
“comprehensive structural reforms” of its labour law and the
pension system. This had a bearing on how France would be treated
under the deficit procedure and whether it would come in for
sanctions, and for that reason, recommendations started looking more
like demands.
In other
words: whereas earlier country specific recommendations adopted under
the European Semester were just that, with the Two-Pack from 2013,
non-compliance could lead the Commission to take the next step
towards sanctions.
"Slash
wages now!”
There’s
more. In the early stages of the eurocrisis another procedure was
introduced that was to work in parallel to the deficit procedure: the
'Macroeconomic Imbalance Procedure'. This procedure allows the
Commission to monitor the development of member states’ economies
based on a predefined set of indicators. One of them – perhaps the
most important one – measures how high the labour costs are
developing (unit labour costs). If wages are not kept at bay,
competitiveness suffers, and measures have to be taken, so the logic
goes.
The
'Macroeconomic Imbalance Procedure' is also a potent weapon, as it
can lead to a fine if a Eurozone member state crosses the line
repeatedly and for a long time. And France has been in the crosshairs
of the Commission for quite a while. Commission staff has
investigated French labour law and identified what factors contribute
“to limiting the ability of firms to negotiate downward wage
adjustment”, and the French Government has been warned – as has
many other member states – about developments in wages. In 2014,
the Commission said “unit labour cost growth is relatively
contained but shows no improvement in cost competitiveness. The
profitability of private companies remains low, limiting deleveraging
prospects and investment capacity.”
The calls
for action to improve the profitability of private companies have
been sent to France from Brussels on numerous occasions over the past
couple of years, and have gained in strength. Thus far, the climax
was in February 2015, when the Commission stepped up the procedure
and singled out Bulgaria and France as the most pressing cases. The
decision put France only a small step from the last stage of the
imbalance procedure, the dreaded 'excessive imbalance procedure'
which entails – exactly like the deficit procedure – a massive
fine. If all fines are put together – from the deficit procedure
and the imbalances procedure – they could amount to 0.5 per cent of
GDP, or in the case of France, approximately €11 billion.
The final
countdown
Such a
prospect must be terrifying for the French Government, and in 2015,
then, it would have to come up with something of substance to appease
the European Commission and its partners in the Council. In March
France was given two more years to bring its house in order, and if
there was any doubt over the way to get there, the message to France
in July was clear. Country Specific Recommendation number 6 to France
under the European Semester, includes a call to “reform the labour
law to provide more incentives for employers to hire on open-ended
contracts. Facilitate take up of derogations at company and branch
level from general legal provisions, in particular as regards working
time arrangements.” In other words, the very reforms now at the
centre of dispute with the El Khomri law.
The
recommendation was copy-pasted from a Commission proposal; one that
struck a chord among business lobby groups. In the annual 'Reform
Barometer' of BusinessEurope, a procedure set up to influence the
European Semester, the French employers association MEDEF was
enthusiastic about the move, and dubbed it “extremely important”
in its contribution to the Reform Barometer 2016.
End game
Who exactly
has done what since the summer of 2015 is the subject of intense
debate. French media outlet Mediapart suggests the German Government
might have played a big role in designing the French reforms, while
others believe the specifics were entirely homemade. In any case,
there is no denying that the reforms were pushed heavily by the
European Union, more specifically by the Commission and the Council.
And the push was based on the web of rules on member states’
economic policies, sometimes called 'economic governance', that has
been spun thread by thread since 2010. The strengthening of the
deficit procedure, the European Semester, the Two-Pack, and the
macroeconomic imbalance procedure have all been used for the purpose
they were invented: to exert maximum pressure on member states to
adopt austerity policies.
There are
other similar examples in Europe at the moment. In Italy and Belgium
too, you see the effect of the new tools handed over to the European
Union since 2010. But France is special for its size and its power in
the EU. The ongoing struggle in France can be seen as a major test
case for European economic governance. If a big, powerful EU member
state can be pushed to attack fundamental traits of its labour
protection law, then the risk of new and stronger measures are much
more likely in the future. Even if French workers are unaware of it,
they’re fighting a European battle.
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