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France Economy Could Get Much-Needed Boost From Labor Law Changes

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France has dominated the headlines since the terrorist attacks on satirical magazine Charlie Hebdo earlier this month. The ensuing debate has raised a number of issues that are key to France’s future, many of which relate in one way or another to better overall economic growth — something that is sorely needed, since France is expected to grow no more than a meager 0.5% for the third year in a row. Can France turn things around?

New Regulation Could Spur Change

In a few weeks, the French government will vote on an important series of economic reforms designed to invigorate the country’s private sector. If these measures are passed, investors like Stuart Quint, senior investment manager and international strategist at Brinker Capital, believe that France stands a real chance of being able to turn things around for a better economic future.

Among the measures announced by France’s economy minister, Emmanuel Macron, in October, are a number of provisions to make France’s notoriously rigid labor market more flexible. These include the longstanding, contentious issues of letting businesses operate on Sundays and opening up more protected professions.

The new laws, if they pass, would also make it easier for companies to hire and to fire personnel, even if progress on this front will take a long time to come close to the U.S., and the U.K., said Quint. In his view, though, these measures are necessary to spur the corporate sector and then kickstart economic growth in France.

“As regulation now stands, France is not a very encouraging place for companies to do business,” Quint said. “The 35-hour work week, for instance, and the fact that three-quarters of hires are coming from temporary contracts, makes it very difficult for businesses of any size to have a bullish outlook on France.”

Although the latest polls do indicate that the measures will pass as they stand, Quint is unsure that will be the case. A more diluted version of the laws could help French business, which unlike businesses in other European countries, are not constrained in borrowing. However, to have an impact on economic growth, business confidence must pick up, Quint said, and for that, regulation really must change.

Weak euro to help French exports

France has always had an edge in certain sectors such as luxury goods and packaged consumer staples. With a weaker euro, these stand to gain further, said Quincy Krosby, market strategist at Prudential Financial, as will other French exports, further aided by the European Central Bank’s just-announced E1 trillion quantitative easing package.

“Everyone thinks of Germany as a major export machine but France’s export sector is also important, and the weaker euro will be a catalyst for French exports, even if these are dependent on demand both from Asia and from the Eurozone itself,” she said.

The weaker euro will also help other sectors of the French economy, notably tourism, said Tom Elliott, chief investment strategist at the deVere Group in London. “Any country that relates currency to the dollar will suddenly find it cheaper in Europe, and France is the world’s leading tourism destination,” he said.

Corporate innovation in niche sectors is helping

Few people are aware of the fact that France is actually a market leader in a number of innovative areas – industries that, according to Pierre Bonnard, director at Ubifrance in Chicago, are increasingly catching the attention of both French and foreign investors.

“France has always been a leader in the IT and telecom areas,” Bonnard said. “Not many people are aware of this, but France was one of the first countries to embrace online shopping, so there’s a longstanding tradition of innovation in the tech area. Aeronautics is another big area where we see innovation, both on a large scale and in the start-up space. There’s a French start-up that makes the lightest airline seats, for instance.”

France is also a leader in the kind of avant-garde, greener technologies that are rapidly becoming the norm in a number of countries.

“The innovative system of bike sharing, for instance, was born in France, and first employed in Lyon and Paris,” Bonnard said, “as was car sharing, where you take a completely electronic car from one place and leave at another place.” France is exporting these technologies to different parts of the world. French company Bolloré, which pioneered electronic car sharing, is now implementing the model in Indianapolis, Bonnard said.

Can Changes to Labor Laws Help Socially?

Unemployment is high in France, and many believe that it has contributed to the social problems that the country is now facing.

To that end, easing the rigidity of the employment system would help in perhaps reducing these problems, Elliott said, by bringing more people into the workforce.

“In France, it’s better to see a client walk away from a restaurant in June or July then to take in new people to wash dishes,” he said. “It’s very hard for people to move up the ladder regardless of the industry they work in, and it’s almost impossible to fire someone. You can’t fire the dishwasher who didn’t turn up to work, but meanwhile, you have had 20 people coming in that day to ask for his job.”

Last week, France passed a series of counterterrorism laws that will also create a slew of new jobs.


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