French president overrides parliament to push through reforms

French president François Hollande took drastic action on Tuesday to push through a package of business-friendly economic reforms, overriding parliament to quash a rebellion within his own ruling Socialist party and avert a government crisis.

The move underlined Mr Hollande’s determination to implement reforms intended to kick-start France’s economy and which have been demanded by his European partners as the price for delaying the reduction of the country’s budget deficit.

But the resort to a rarely used constitutional instrument last to pass the law also signalled the weakness of his own government, unable to rally a majority in the National Assembly because of dissent by several dozen Socialist party left-winger opposed to austerity and the deregulation package.

The lack of parliamentary support for flagship measures is likely to ring alarm bells in Berlin and Brussels as concerns grow that the political tide in the euro zone, led by Greece, is turning against essential economic reforms and tough budgetary discipline.

The centre right opposition UMP party led by former president Nicolas Sarkozy said it would call a vote of confidence in response to the emergency action. Mr Hollande was gambling that the Socialist rebels would fall back into line in a confidence vote to ensure the survival of his government.

Drama

The drama erupted only weeks after Mr Hollande had seen his previously record-low popularity surge after his strong handling of the Islamist terror attacks in Paris last month in which 17 people died in assaults on the satirical magazine

Charlie Hebdo

and a kosher supermarket.

When it became clear on Tuesday morning that Manuel Valls, the reformist prime minister, could not be certain of winning a vote on the reform law, Mr Hollande convened an emergency ministerial meeting at the Elysée Palace.

He gave the greenlight to Mr Valls to use Article 49.3 of the French constitution, which allows a government to pass laws without a parliamentary vote.

“A majority may exist for this bill, but it is not certain,” Mr Valls told lawmakers. “I will therefore not take the risk of a rejection. (...) Nothing will make us move back, in best interests of the French.”

The use of Article 49.3, last used nine years ago, means the package of law put together by Emmanuel Macron, the 37-year-old economy minister, will automatically pass unless the government is ousted in a no-confidence vote.

The Bill has been hailed by the French government as evidence that it is serious about implementing structural reforms urged by its European partners. A rejection would have sent the wrong signal to the European Commission, a week before deciding whether to fine Paris for missing its deficit target.

The wide-ranging measures will extend Sunday trading hours, shorten labour arbitration procedures and deregulate notary and legal professions, among other reforms.

Tax cuts

Economists have broadly welcomed the Bill, which comes on top of tax cuts worth as much as €40 billion by 2017 to help companies reduce labour costs. The Bill and the tax breaks are the two main initiatives underpinning Mr Hollande’s attempts to boost economic growth and curb record unemployment two years before presidential elections. A recent poll suggested that more than 60 per cent of the French viewed Mr Macron’s law favourably.

"The French want this law: they are obviously ready to move forward," said Laurent Bigorgne, director at Institut Montaigne, a Paris free market think-tank. "The path for reforms has been cleared. I hope the government will seize that opportunity to accelerate the pace of reforms."

But the debate in parliament has been long and painful so far. Mr Macron - believed to be too pro-business by some within the socialist party because of his 18-month stint as a Rothschild banker four years ago - spent more than three weeks trying to overcome fierce opposition from the left and the right, underscoring the government's thin margin for manoeuvre to pass substantial reforms in parliament.

Martine Aubry, the daughter of former EU commission president Jacques Delors and an influential socialist party figure, has attacked the plan to increase the number of Sundays shops can open from five a year to 12, calling it "social regression". The green party and the far left parties were expected to oppose the Bill too.

Break ranks

On the right, only a handful of UMP lawmakers had decided to break ranks with party leader Nicolas Sarkozy, who had called for his MPs to vote against the law despite it being largely inspired by a report he commissioned in 2007 when he was president.

Many economists have said the package will have a limited effect on growth and unemployment, which exceeds 10 per cent of the workforce. This is a conclusion also shared by an independent commission set up by Mr Macron to evaluate his reforms.

"The Macron law is positive but it was long overdue and will have a minimal impact," Giovanni Zanni, an economist at Credit Suisse, said. "If you look at the UK, most of these measures happened decades ago."

“A depreciating euro combined with record low interest rates on French sovereign debt and lower oil prices will boost the economy to a much greater extent”, Mr Zanni said.

But advisers at the French finance and economy ministry remain optimistic and say more reforms are to come.

Next on their agenda is tackling a rule that forces companies with more than 49 employees to comply with extra regulation mostly related to workers' representation, which is so burdensome that business owners tend to curb their expansion in order to stay below the threshold. There are twice as many companies in France with 49 members of staff than with 50.

The government is expected to present a Bill reducing the regulatory burden after employers and trade unions failed to reach an agreement last year.

“If France doesn’t carry out reforms now, it will miss a great window of opportunity to do so,” Mr Bigorgne said. “The macroeconomic environment will never be as benign.” –(Copyright The Financial Times Limited 2015)