Europe's 'secret hand' in France's divisive labour law

WhileWhile France’s socialist government has shown a willingness to negotiate in a number of social conflicts, most recently with that of the railways, it has remained intransigent in face of the massive contestation over its bill of reforms to the country’s labour laws. The dogged determination of the government to see its new labour law bill become legislation has seen it use a decree to get it through the National Assembly on its first passage, doing away with debate and a vote by MPs.

“If the government doesn’t negotiate it’s because it cannot,” said a source close to government, who asked not to be named. “It is held back by its pledges to Brussels.” That suggestion has been backed by a number of sources questioned for this article.

To make the EU the scapegoat of most things unpopular has become a regular process among the French political class. But the question looms large: did Brussels dictate the terms of the labour law reforms?

At no time during the bill’s presentation and its shortened passage through the lower house, the National Assembly, did the government make any reference to demands by the EU. But for left-wing critics of the EU, the case is clear, it was Brussels which seeks to smash the “French social model”, which dictated the labour law reforms and wants to impose the same liberal economic structure across the continent.

While commenting on the tragic outcome of the Greek debt crisis and the failure of successive bailouts, and the threat of Greece to withdraw from the eurozone, former Greek finance minister Yanis Varoufakis has on several occasions warned of a hidden plan by influential German finance minister Wolfgang Schäuble. Greece is but a test, warned Varoufakis last year, saying that Schäuble’s real target is Italy and France, and notably the latter’s welfare state and comparatively generous labour laws.

There is a concomitance of labour law reforms in Europe: under heavy prompting by the European commission (EC), Italian prime minister Matteo Renzi in March 2015 adopted his so-called “Jobs Act”, which creates open-ended employment contracts with progressive protection guarantees and an easing of firing conditions, and with disputed results. In February this year, the Belgian government announced its own bill of reforms of the labour market – which it has not as yet presented publicly - aimed at freeing up working hour limits from 39 hours to 45, calculated on an annual basis and which, as in France, has prompted numerous protests. 

The attitude of the French government in face of the opposition to its labour law reforms is being closely monitored by Brussels, with clear encouragements to stay firm with the trades unions leading protests against the bill. “To give up on the labour law [reform] would be a major mistake,” said Pierre Moscovici, European commissioner for economic and financial affairs, who was until 2014 French economy minister, in an interview with French daily 20 Minutes on May 26th. “All the countries which have carried out reforms to the job market […] are those which have succeeded in lowering unemployment. Those which refused reforms of the job market are those which have the weakest performance. And when one looks at France, one observes that it is 21st out of 28. That’s not something one can glorify oneself about.” For Moscovici, the terms of the El Khomri law, as the labour law reforms are known, after the name of labour minister Myriam El Khomri, are a minimum for necessary change.

The European Commission (EC) president Jean-Claude Juncker unsurprisingly agrees. “It is not an attack on French labour law,” he said during a meeting with the press in Paris on May 31st. “It is the minimum of what needs to be done. “The bill of law in as much as it has been conceived, on condition that Article 2 manages to survive, is a reform that goes in the right direction.” Juncker was referring to the law’s article which allows for company-by-company negotiations between employers and employee representatives on issues such as working hours and pay, instead of the current global sector-by-sector negotiations. Article 2 remains the essential sticking point between opponents of the law and the government 

The insistence on the part of the EC president that Article 2 remain intact is not just his individual view. It is also a reminder of the recommendations made to France by the European Council, and which are the result of negotiations between the council and member states and the pledges made by those states.

On July 14th 2015, a day after the last-minute deal was reached for third bailout plan for Greece, the European Council published its recommendations for reforms in France within the framework of its budgetary surveillance of countries with excessive deficits. Everything came under review: budgetary overruns, public spending, the reform of local authorities, the liberalization of regulated professions, and the labour market, which the council considered insufficiently reformed. “Recent reforms have created only limited  scope for employers to depart from branch- level agreements through company-level agreements,” read the council’s “Recommendation”. “This limits companies' ability to modulate the workforce according to their needs. Sectors and companies are given flexibility to determine case by case and after negotiations with social partners at which conditions working time should depart from 35 hours a week, but there are important cost implications. ”

In its conclusion, the last of council’s six recommendation reads like a preamble to the labour law reform bill. “Reform the labour law to provide more incentives for employers to hire on open-ended contracts,” it reads. “Facilitate take up of derogations at company and branch level from general legal provisions, in particular as regards working time arrangements. Reform the law creating the accords de maintien de l'emploi by the end of 2015 in order to increase their take-up by companies. Take action in consultation with the social partners and in accordance with national practices to reform the unemployment benefit system in order to bring the system back to budgetary sustainability and provide more incentives to return to work.”

In clear, it inscribes the ‘reversal of the hierarchy of norms’, the term used in French to describe doing away with branch-level agreements as the reference point, as is currently the case, and replacing it in the pecking order with company-by-company agreements.

The European Council text raises several questions: what role did it play in the drafting of the labour law reforms bill in France? Did it place demands on Paris? Did it simply acknowledge the French engagements to launch “structural reforms to liberalise the labour market”? What was offered to Paris for it to accept engaging on the reforms? Above all, why was it that the French government gave no public comment about the council’s recommendations and the follow-up that it intended to give them?

Neither French finance minister Michel Sapin, nor members of his ministerial cabinet replied to Mediapart’s questions, sent by email a week before publication of this article. A similar set of questions was sent to economy minister Emmanuel Macron, after which his cabinet did reply. In response to one of the questions, the ministry said the European Commission played no role in drafting the labour law reform bill. “The commission would be flattered that its recommendations appear to be compelling,” an advisor to the economy minister told Mediapart. “That is not the case. But there exists a shared diagnostic. France needs to make structural reforms. The labour law [editor’s note : reform bill] is necessary. France has often announced its willingness to introduce reforms, without really doing so. But this time the government has decided to introduce them. It’s proof of credibility.”

According to several well-informed sources, one must spool back to October 2014 to understand the conditions that led to the labour law reform bill. France was then under pressure, with its economic activity at a low, constantly rising unemployment, despite the 20 billion-euro CICE tax break scheme for businesses, and its budgetary deficit stuck at 4% of Gross Domestic product (GDP). At the beginning of October 2014, the French government submitted its 2015 budget plan to the European commission. It included a new snub of the Maastricht rules by postponing from 2015 to 2017 the target to bring its budget deficit to 3% of GDP. The French government forecast a public deficit of 3.8% of GDP in 2015 (in reality it was 3.5%).

EU member states and European commissioners demanded that France was no longer made an exception of and that it should be punished for breaking the rules. Jeroen Dijsselbloem, head of the informal structure of eurozone finance ministers, was particularly ruffled. Adding to the tensions was the fact that it was Pierre Moscovici, the newly-appointed European commissioner for economic and financial affairs, who was in charge of analyzing the state of France’s public finances in the state that he had left them in his previous job as French economy minister.

On October 19th, the often well-informed German weekly news magazine Der Spiegel reported that France’s finance minister Michel Sapin and economy minister Emmanuel Macron travelled to Germany to secretly discuss with their German counterparts, respectively Wolfgang Schäuble and Sigmar Gabriel, a French draft budget for 2015 which could be approved by the EU. According to Der Spiegel, the German government was particularly keen to avoid a new eurozone conflict. The weekly quoted an unnamed senior German government official as saying that if the European Commission rejected the French budget plan it would "massively hurt German-French relations".  The suggestion was that Berlin would help France draw up a detailed plan for structural reforms that it would promise to enact in order to bring its deficit down to below 3% of GDP.

Immediately after Der Spiegel’s report, Macron denied that a written Franco-German plan for a draft French budget existed. “That’s false,” said Macron. “But there is the will to put in place a deal which is that we…we undertake reforms.” Today, 20 months later, Macron’s ministerial cabinet continues to refute any involvement by Germany in the drafting of structural reforms in France. Referring to the meeting in Germany between Sapin, Macron, Gabriel and Schäuble, a ministerial advisor told Mediapart: “This quadripartite meeting was strictly [only] about the budgetary efforts that France had to make,” he said. “Four million euros of further savings were decided on there. Moreover, there was another quadripartite meeting on December 2nd [2014] in Berlin to discuss the Juncker plan. The discussions with the [European] Commission about the structural reforms didn’t begin until spring [2015].”

Is the suggestion that Berlin had a hand in the drafting of the French reforms unfounded? Since the worsening of the European crisis, German finance minister Wolfgang Schäuble has made no secret of his desire to see a deep integration of the eurozone. Schäuble detailed his project in an article co-signed with former foreign policy spokesman of the Christian Democratic Union party, Karl Lamers, published by the Financial Times on September 1st 2014. The eurozone should continue on the path of complete economic integration to be able to function and to avoid new crises, he argued. “Why not have a European budget commissioner with powers to reject national budgets if they do not correspond to the rules we jointly agreed?” asked Schäuble and Lamers. But in the meantime, “our efforts in the coming years must focus on policy areas that are decisive for boosting growth and employment,” they write. “This means ensuring sound public finances, continuing to regulate financial markets and to reform labour markets, deepening the internal market, concluding a transatlantic free-trade agreement and curbing harmful tax competition.”

It is difficult to imagine that just one month after that article was published the German finance minister had given up on his project. It is still more difficult to believe that he did not sieze the opportunity to write the plan of reforms which he wanted to see adopted (or imposed?) by France. Whatever, following the French-German meetings in Berlin, France escaped the penalty for excessive deficits bandied by Brussels and was given a two-year delay to meet the EU deficit rules. But at what price?

Throughout the autumn and winter of 2015, French finance minister Michel Sapin and the head of the French Treasury, Bruno Bézard, travelled back and forth to Brussels to negotiate on the EU’s decisions about France. But, according to information gained by Mediapart, other negotiations were being held on the sidelines.”More than the [European] Commission, it is Wolfgang Schäuble who leads the attack against the labour law in Italy and in France, using the support of [Italian finance minister] Pier Carlo Padoan and Emmanuel Macron,” said a source well informed on, and close to, EU affairs, speaking on condition his name is withheld. “They hope not only to gain a few margins for manoeuvre on the budget deficit, but also something more tangible in the form of a budgetary transfer, like a common unemployment insurance. I fear that they may be disappointed.”

Questioned by Mediapart, Macron’s cabinet insisted that the minister had spoken very little with Schäuble, who is not his ministerial counterpart, as also with Padoan.

Throughout this period, Macron was noticeably involved in European issues. Along with making a series of declarations in favour of a stronger integration of the eurozone, in June 2015 he published an article co-authored with his German counterpart Sigmar Gabriel  calling for a push for greater European integration. They argued that “we have to launch an economic and social union by agreeing on a new, staged process of convergence that would involve not only structural reforms (labour, business environment) and institutional reforms (functioning of economic governance) but also social and tax convergence where necessary (consistent, though not necessarily equal, minimum wages, and a harmonised corporate tax)".

That project is hardly any different to that of Wolfgang Schäuble. Was that article written on the French economy minister’s initiative alone or was he mandated to go about it by the prime minister or the president? It is another ambiguity created by the very particular status that Emmanuel Macron has been given in government.

It is within this context that, in July 2015, the European Council recommendations to France were published. “There was no doubt a European incitation, and perhaps even strong German pressure,” commented a source close to the events. “But I don’t think that the French government truly had its arm twisted. The higher French administration and a good number of political leaders don’t need to be forced over the subject, they are convinced of the soundness of the liberal European doctrine. In my opinion it is France that spoke of the ‘reversal of norms’ of the primacy of the company-by-company agreements over the branch agreements and the law. Of course, that could only ring pleasantly in the ears of the European commissioners.”

Had François Rebsamen, who Myriam El Khomri replaced as labour minister last September, foreseen what was being prepared in the future labour law reforms bill, with regard to the European Council recommendations? Had he seen that he would be required to politically assume responsibility for a deconstruction of the labour laws? If at the time of his resignation political observers did not attach unusual importance to his decision to leave the government, the question is raised now: why the suddenness of his move, on July 30th 2015, to return as mayor of Dijon following the death of the man who succeeded him there when he joined the government (government ministers cannot hold a simultaneous post of mayor)?

On September 2nd 2015, President François Hollande and Prime Minister Manuel Valls appointed Myriam El Khomri as Rebsamen’s successor. Previously, she had been state secretary for urban policies since August 2014, and before that was a deputy mayor of Paris in charge of security policies. It appears that Hollande spared no energy to convince her to accept the job, insisting that the labour law reform would be the significant political event of his government, a grand, left-wing social law It would be notably marked by the introduction of a “personal activity account” (le compte personnel d’activité), which allows employees to carry with them throughout their working life all the benefits they acquire from the different companies they work for, as opposed to having to cash them in or renounce them if they leave an employer for another. If she were to be successful at the head of this emblematic and difficult ministry, she could hope for an important political career ahead. At the age of 37 (in February she turned 38), and in face of a majority of ministers who are in their 60s, she would be able to bring a fresh, new style to the cabinet. But at no point did the French president or his prime minister mention any deal with the European Commission.

The preparations for the reform of the labour law began without El Khomri. Two think tanks - the Institut Montaigne, close to the Right, and Terra Nova, close to the Left – had already completed reports on the subject before she arrived. Meanwhile, the prime minister’s office, the Hôtel Matignon, had commissioned a report from Jean-Denis Combrexelle, a civil servant and former general director for labour at the labour ministry, entitled ‘Joint negotiations, employment and work’. Whether or not a coincidence, these different reports authored by people from quite different standpoints come to almost entirely the same conclusions regarding what the new reforms should be. These were to limit the law to the strict essentials, notably a maximum working week of 48 hours and the existence of a legal minimum wage. All the rest should be decided by collective negotiations and adaptation, notably working time, wages, employment and working conditions.

Two months after El Khomri took up her post, the prime minister’s office commissioned a committee led by socialist veteran and former justice minister Robert Badinter to report their recommendations on “The essential principles of the labour law’. El Khomri, meanwhile, had begun talks with trades union officials to set out a roadmap for a reform of the labour law. After the talks ended in November 2015, the new labour minister spoke of  “revitalizing social dialogue”, suggesting that deals (on working hours, pay and so on) be reached at a branch level - meaning global agreements reached by unions and employers for a given industrial sector - and at company level, rather than referring to law. She was notably enthusiastic for the ‘personal activity account’, which would assist with employees’ mobility, and company employee referendums which would encourage dialogue. However, two of France’s major trades unions, the CGT and FO were reticent , and already warned of problems with upending the current hierarchy of negotiations, in which branch agreements (which are reached with trades unions) are decisive.

“Myriam El Khomri had a strong ambition, she had the intention of introducing a left-wing law,” said Pierre Jacquemain, a former advisor to the minister. “The [new] labour law was to send a signal to the Left, so as to rebalance the five-year presidency in the other direction,” continued Jacquemain, referring to the objections on the Left that François Hollande has led right-wing policies, notably his tax breaks for business. “She believed a great deal in the personal activity account. But, in reality, she didn’t have a hand in the draft bill. Everything was decided at the prime minister’s office.”

Jacquemain resigned from the ministry in February over his disagreement with the reform, which he considers fatal for the Left. Another ministry advisor, quoted by French investigative and satirical weekly Le Canard enchaîné, confirmed what Jacquemain said: “The reform arrived on the minister’s desk written in full. She had no margin for manoeuvre.”

In fact, El Khomri’s ministerial cabinet director, Pierre-André Imbert, had begun writing the draft text of the bill immediately after the Christmas holidays, in discreet liaison with the prime minister’s office. Prime Minister Manuel Valls had insisted with El Khomri that Imbert, who had served as cabinet director under her predecessor François Rebsamen, remain in the post under her. Before his job at the ministry, Imbert had worked for almost ten years in two management consultancy agencies, Altedia and later Alixio. Both are headed by Raymond Soubie, a former social affairs advisor to Nicolas Sarkozy (for the past 30 years, a handful of people, close to business and its leaders, play an influential role on France’s social policies).

While Imbert drafted the bill in collaboration with the prime minister’s office, Myriam El Khomri was unaware of what it would contain. “She was told not to worry herself with the technical details,” recalled her former advisor Pierre Jacquemain. “Her only mission was to say that it was a left-wing law.” Meanwhile, at the yearly Davos economic forum held late January, economy minister Emmanuel Macron made the provocative statement that France must put an end to the 35-hour week and its restrictive labour laws. At the very same time, Robert Badinter  and his committee delivered their report of recommendations regarding the labour law, in which they advise keeping only the very strict minimum in legislation.

At the end of January, François Hollande, Manuel Valls, finance minister Michel Sapin, Emmanuel Macron and Myriam El Khomri held a meeting together at the presidential office, the Elysée Palace. At the end of the session, it was decided that there would be no second ‘Macron law’ (the first, more formally entitled “the law for growth, activity and equality of opportunity” and dubbed ‘the Macron law’ was largely an economically liberal piece of legislation), but that Sapin would present a bill of law on “Transparency, the fight against corruption and the modernization of economic activity”, and that El Khomri would present the draft bill of reforms to the labour law.

In early February, a second meeting of the same parties met at the Elysée Palace to debate the contents of the new labour law bill. Macron agreement to drop his planned second ‘Macron law’ was conditional to the inclusion into the reforms of two things that would have otherwise figured in his own legislation. These were the freeing up of restrictions on redundancies based on economic grounds, and imposing a limit to compensation awards at industrial tribunals.

 According to several sources, El Khomri protested at this and said she could not champion a left-wing reform while accepting right-wing measures. Hollande and Valls agreed with her.

At the end of the meeting, El Khomri believed she had won against Macron. But during the discussions, she had paid little attention to the fact that the text of the bill included replacing the law and union-employer negotiations to fix fundamental working conditions by industrial sector, or ‘branch’ level, by giving pre-eminence to company-by-company negotiations. Had she understood the scope of the measure? Whatever, it was not something that she considered significant. “I think they had the European directives in mind,” said Pierre Jacquemain. “But it was never spoken about. The European issue was posted workers, that’s all. I think they were trying to win time.”

One week later, the atmosphere had radically changed. Emmanuel Macron had obtained from Hollande and Valls the reintegration into the labour law reforms of his measures easing conditions for redundancies on economic grounds and placing a ceiling on the amounts awarded as compensation to employees by industrial tribunals. El Khomri had lost the battle, and she began to understand that the reforms would not be the grand social reform she had envisaged. Her hope was that Valls’s office would provide her with help on the semantics to use in defence of the bill. That was when Pierre Jacquemain resigned from the ministry. He was followed by three other members of El Khomri’s cabinet in the following weeks.

On Wednesday February 17th, French daily Le Parisien revealed thecontents of the labour law bill. That was how El Khomri discovered the totality of the text and the extent of the damage. Valls and his staff were furious, and suspected the source of the leak was among members of the labour ministry who wanted to scupper the bill. An enquiry was launched and found that between the presidency, the prime minister’s office and the labour ministry just five people were in possession of the text of the bill. A small number of others at the finance ministry also had it.

In the labour ministry, the ministerial cabinet director and the deputy director had a copy of the bill – but not El Khomri.

The publication of the text in Le Parisien immediaterly prompted an opposition movement. A petition was launched online among the social media entitled “Labour Law – no thanks” and within days it attracted more than a million signatures. El Khomri was now aligned with Valls, and gave an interview to French financial daily Les Échos in which she defended the bill and warned that if necessary the government might use the 49-3 decree, an exceptional measure which allows a bill to become law without a vote in parliament, and is used when a rebellion among the parliamentary majority threatens to turn it into a minority at the moment of voting. The idea to raise the threat came from Valls, against Hollande's choosing.

The government finally used the 49-3 decree on May 10th, to bring a halt to all the many amendments being proposed and to smother the socialist rebels who were fiercely opposed to the bill. That ensured the bill’s first passage through the lower house, the National Assembly. It is currently with the upper house, the Senate, before it returns to the National Assembly for a final time. Valls has not ruled out using the 49-3 decree a second time then, ensuring that the bill becomes law before the summer recess. At no point has the government explained the true reasons for forcing through a law that, as opinion polls show, is rejected by a majority of the population.

-------------------------

• The French version of this article can be found here.

English version by Graham Tearse