France Trying to Fix Rigid Labor Market

Investors and international institutions often criticize France for its rigid labor market and how that’s a drag on its economic performance. But that’s about to change, the former governor of the Bank of France told CNBC.

“I frankly think that apart from the UK, in three to four months from now, France will have the more flexible labor market in Europe,” Christian Noyer, honorary governor of the French central bank told CNBC on the sidelines of the Europlace conference in Paris on Tuesday.

“That will be a great achievement, it’s really a game changer,” he added.

In the first hours of his presidency, Emmanuel Macron said he would push for a decentralization of collective bargaining to individual company level, so companies are more free and negotiate with their own workers. France’s new premier, Edouard Philippe also vowed a summer of “intense consultations” with trade unions to pave the way for a labor market reform bill in September.

The government is trying to move rapidly on the issue that’s long been described as the biggest drag on the French economy. However, the fight with the trade unions is not going to be easy. The leader of the largest French trade union told the Financial Times in May that the government should not hurry the reform and instead it should extend the consultation period to allow for a proper discussion.

However, the reform impetus in France has probably never been this high. Noyer described the recent measures to cancel the extension of tax on financial transactions and the scrapping of the highest bracket of payroll tax on bankers as “very good starts” to attract more business to France, mainly from the UK as the country prepares to leave the European Union.