France is about to show Britain how bad industrial unrest can really get
There is a long history of ministers in Paris backing down in the face of strong opposition on the streets
‘About 80pc of the public opposes Macron’s overall pension reform proposals’
On both sides of the Channel it is a popular pastime to compare national performance with the neighbour across the water. In today’s troubled times, this is especially interesting.
Because of its topicality, let us start with the labour market. We are currently so obsessed with our own labour market travails that we often fail to take due account of what is going on in other countries.
Last week, Emmanuel Macron’s government unveiled an ambitious programme to reform the French pension system. It aims to make the French state’s ultra-expensive pension scheme sustainable and to encourage older workers to stay in employment.
The most important measure is an increase in the minimum retirement age from 62 to 64. The aim is to achieve this objective by the end of the decade.
This is less draconian than Macron’s original proposals, which had the minimum retirement age rising to 65. And there are important concessions for people who started work before the age of 20 and for carers, people with disabilities and workers in the so-called “active” professions such as firefighters, police and the military. Moreover, pensions are to be increased for both current and future pensioners. Perhaps the greatest challenge will come from the plan to wind down the notoriously generous pension arrangements for workers in electricity, gas and the railways. They are in a strong position to mount a campaign against the reforms and in the process cause massive industrial disruption.
Moreover, according to opinion polls, about 80pc of the public opposes the overall pension reform proposals. Indeed, many want the retirement age to be reduced. Trade unions are planning a first day of strikes and demonstrations on Thursday. There is a long history of French governments backing down in the face of strong opposition on the streets. Given all this and potential opposition in parliament, the reforms could be watered down.
More generally, although France doesn’t have quite the same problem we have with a contraction of the workforce post-covid, it does have a long-standing problem with a comparatively high rate of unemployment, which currently stands at just over 7pc, compared with the UK’S 3.7pc. Moreover, among men aged between 55 and 64 its participation rate is among the lowest in the developed world at about 60pc, compared with about 70pc for the UK.
The overall French macro environment is relatively good but still nothing to write home about. Last year the French economy grew by about 2.5pc, a fair bit less than the UK’S rate of 4pc. But France should outpace the UK this year as output stagnates and with our likely contraction of 1.5pc.
Before you ask, the performance of the French economy since 2016, the year of the Brexit vote, is a fair bit better than the UK’S – growth of 7pc compared with our 5.5pc. But over this period, France has done better than most other EU members. Starting even before Brexit, continental commentators have been prone to criticise the UK for headlong deindustrialisation.
Indeed, the proportion of the UK’S GDP accounted for by manufacturing is now down to 8.8pc. But the equivalent figure for France is much the same – 8.9pc.
Inflation in France is currently running at only 6.7pc, compared with 10.7pc in the UK, down from 11.1pc the month before. (The French figures are so much lower because of heavy intervention by the government to contain rising energy prices.)
The latest UK figures are out on Wednesday. They may show a further small fall. Inflation will also decline in France for most of this year, although probably more slowly than in the UK, so that by year-end the two rates should be similar.
As in most other Western countries, price inflation is outpacing the growth of average earnings. Accordingly, just as in the UK, real pay is falling and therefore living standards are being squeezed.
France has experienced much the same slowdown of productivity growth that has dogged the British economy since the global financial crisis of 2007-09. But French productivity per hour worked is higher than in the UK, although some of the benefit is lost through higher unemployment.
France’s public finances are in a more parlous condition than ours. The ratio of French government debt to GDP is about 113pc compared with just over 90pc (on the underlying measure) here. Moreover, it looks as though in France the ratio will be at about this level for the next decade. That means that France is dangerously exposed if the financial markets should suffer a loss of confidence.
True, the French ratio is nowhere near the Italian equivalent, which is running at about 145pc. But this is well above the level in Germany (67pc) and the Netherlands (45pc).
As it is, with the ECB expected to continue to increase interest rates this year, perhaps from the current 2pc to 3pc by mid-year, the cost of servicing France’s government debt will probably be driven higher, putting upward pressure on the budget deficit, which this year looks likely to be about 5.3pc, compared with our likely figure of just under 5pc.
Meanwhile, last year France ran a current account deficit of 1.5pc of GDP, admittedly much lower than the UK’S likely figure of about 5.5pc. Last week, I highlighted the importance of “the other national debt”, that is to say the net balance of assets held abroad against liabilities to foreigners. I bemoaned the fact that the UK has a net deficit of 18pc of GDP. But the French figure is a deficit of over 30pc of GDP.
For all their differences, France and the UK face similar economic challenges, not least containing government debt and reforming labour market practices, especially in the public sector.
This week will doubtless see more industrial unrest in the UK, but I suspect that once things get going in France on Thursday, French workers will outdo their British equivalents in the virulence of their protests.