After Yellow Vests, Macron Faces Even Tougher Battle With Unions

(Bloomberg) -- Emmanuel Macron’s efforts to push through economic reforms, already damaged by street protests, are about to face a more organized resistance: France’s labor unions and business lobbies.

The president is determined to continue with a barrage of overhauls after throwing out his fiscal rulebook to appease the Yellow Vests movement with tax cuts. Top of his list is a rethink of unemployment benefits, which Macron says are too expensive and discourage people from working.

After Yellow Vests, Macron Faces Even Tougher Battle With Unions

But negotiations are already in trouble, with pushback against cuts and one business group threatening to walk out. The government has warned it’ll take matters into its own hand if it can’t secure agreement. For Macron, unilateral action to cut welfare when thousands continue to protest over low incomes would be a risky move.

At the height of the Yellow Vests disruption, the talks fell apart, with a planned Dec. 11 round canceled. Representatives from the labor unions and business lobbies are due to meet again on Tuesday.

“Given the current climate, this reform won’t be easy if the state has to take over,’’ said Helene Baudchon, an economist at BNP Paribas in Paris. “It’s a delicate subject.’’

Success or failure will weigh on Macron’s capacity to continue the agenda. Next up, he’s penciled in an overhaul of the pension system and the public sector workforce.

He’s already been damaged by the protests and riots, and his popularity has dwindled. The president has also done little to foster allies within the unions with multilateral negotiations, like his predecessor Francois Hollande. Instead, he made his first changes to labor laws by decree.

After Yellow Vests, Macron Faces Even Tougher Battle With Unions

It doesn’t help that the current plan is a big ask. Macron’s trying to engineer a cultural shift to get people off benefits faster and encourage employers to offer stable, permanent contracts.

Unemployment welfare payments are based on previous earnings and can be as high as 6,615 euros a month -- more than five times the minimum wage. Moreover, claimants can continue to cash checks at the same level for up to two years.

An increase in fixed-term and temporary contracts over the last 20 years has been particularly costly. According to the unemployment insurance accounts, outlays for temporary workers losing their jobs outstrip contributions by 9 billion euros ($10.2 billion) a year. The total debt burden has grown every year since 2009.

The government, which ultimately guarantees the debts, has warned it may not cope with the next economic downturn and wants unions to make savings of between 1 billion and 1.3 billion euros a year.

“We have a divisive labor market,’’ said Marc Ferracci, an economist and special adviser to Labor Minister Muriel Penicaud. The rules “contribute to deepening the divide between those who are well protected and those who can’t get into the job market.’’

©2018 Bloomberg L.P.