Few economists expected Dominique de Villepin to embark on radical structural reform of France's labour law on Wednesday, yet many were surprised by the modesty of the measures announced by the new prime minister and the emphasis on the state to solve unemployment.
“A great debate has been launched on the over-regulated, over-protected and over-structured labour market in France. But the end result is nothing,” said Elie Cohen, director of the National Centre for Scientific Research, the monolithic state body. Underlining his disappointment with the prime minister's speech, Mr Cohen said it was “symbolic” that business came in last place in Mr de Villepin's list of the actors he was counting on to tackle unemployment, after the state, local authorities, associations and trade unions.
“This was a speech by a great public servant who has no idea about the reality of economics,” said Mr Cohen. “It is a reaffirmation of the role of the state. There was no reform of labour law, only a catalogue of the usual state aid measures that we have already seen for the last 20 years.”
Christian de Boissieu, head of the council of economic analysis, a government advisory body, was more upbeat, encouraged that several measuresproposed for the last two years by the CEA aimed at encouraging small businesses to hire more staff were adopted. “There are some important steps in the speech, such as the removal of social charges on young employees, the new two-year contract for young people in small businesses, and the removal of extra social charges for redundancies of staff aged over 55,” said Mr de Boissieu.
Anyone expecting radical structural reforms had misjudged the political climate in France after last month's defeat in the referendum on Europe's constitutional treaty, he said. “You cannot expect a revolution in labour law. It must be reformed gradually.”
However, Laurence Boone, French economist at Barclays Capital in Paris, said Mr de Villepin's speech demonstrated “the lack of appreciation of economics that the French elite have and the belief that they have a greater influence over the economy than is really the case”.
Ms Boone said the policies outlined by the prime minister relied heavily on the state to create a short-term reduction in unemployment by creating jobs for the young and elderly in the public sector and local authorities. “The weight of the speech was certainly ‘we carry on as usual'.”
The motivation had more to do with politics than economics, she said. “If you want a decline in unemployment before the French presidential elections in 2007 which is what this is all about then this kind of thing is all we could have expected.”
There was widespread relief among economists that Mr de Villepin did not react to the stinging defeat suffered by the government in last month's referendum by launching an aggressive public expenditure programme.
This would have made it even more likely that France would break the eurozone's 3 per cent limit on public deficits this year for the fourth consecutive time.
“The biggest risk for me was that the government would abandon all control of public finances,” said Olivier Garnier, deputy general manager of Société Générale asset management. “The suspension of the pledge to cut income taxes is a gauge of the ongoing commitment to restricting the budget deficit.”
Yet Mr Garnier said he was disappointed there was “no change of direction”.
He said there were worrying signs of a returnto state dirigisme inthe words chosen byMr de Villepin, suchas industrial policy and grand chantiers “which we have not heard for a long time”.
Unlike under the previous government of Jean-Pierre Raffarin, Mr Garnier said, the new prime minister's speech was also omin-ously silent on the need to cut back the Frenchpublic sector and reducethe number of civil servants.