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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #2003/01 1381224
ZNR UUUUU ZZH
R 181224Z MAY 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 7309
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 002003 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV ETRD ELAB PGOV FR
SUBJECT:  PRESIDENT SARKOZY TAKES ON FRANCE'S WORK ETHIC 
 
 
Summary 
------- 
¶1.  (SBU)  President Nicolas Sarkozy has pledged to move swiftly to 
enact sweeping reforms to make good on his promise of an economic 
revolution.  His first months in power have already been carefully 
planned.  During, an "extraordinary session" of the French 
parliament in July the new government will introduce a series of 
draft bills to make overtime pay tax-free, guarantee a "minimum 
service" in public services during strikes, establish a "Marshall 
Plan" for young unemployed people in the French depressed areas, and 
give autonomy --including financial-- to Universities, in order to 
introduce more competition in French academia and boost research and 
innovation.  Summits between government, union and employer 
representatives will be organized in September to overhaul the labor 
market and unemployment scheme as well as union representation and 
financing in the workplace.  End of Summary. 
 
Introducing minimum service during strikes 
------------------------------------------ 
¶2.  (SBU)  The first test of the Sarkozy presidency may be a bill to 
be presented before the end of the year to force public-sector 
monopolies, notably in transport, to ensure minimum services during 
strikes.  Minimum service already exists in the energy and 
broadcasting sectors.  The proposal has angered unions who see it as 
a unilateral move and sparked warnings of mass protests.  Sarkozy 
vowed earlier this month that the new minimum service in transport 
on strike days would provide for three hours of transit in the 
morning to get to work and three hours in the afternoon to get home. 
 The new government's ability to overcome resistance to the bill 
will determine the future of the other reforms.  Sarkozy has already 
engaged the unions in a well-orchestrated series of meetings that 
showcased Sarkozy's outreach to "social partners." 
 
There's nothing like hard work 
------------------------------ 
¶3.  (SBU)  Sarkozy plans to call an extraordinary session of 
parliament in July to adopt a series of measures to "restore the 
value of hard work" -- a central theme of his presidential campaign. 
 In particular, he wants to exempt overtime worked above 35 hours 
from payroll taxes, a measure intended to reduce the marginal cost 
of labor and increase the purchasing power of employees.  This 
measure is likely to be implemented relatively quickly through its 
inclusion in the 2008 budget law this summer. 
 
¶4.  (SBU)  Most observers believe the psycholigcal impact of the 
move is as important as the substance.  President of the Agency for 
International investment, Philippe Favre, believes it will reflect 
favorably on the "international economic image" of France.  The 
French economic and business community has broadly hailed the move 
as an important step in restoring French competitiveness and 
creating jobs.  Dominique Moisi of the French Institute for 
International Relations (IFRI) commented that the election of 
Sarkozy had proved "that the French were not in the mood for love -- 
but in the mood for work."  Nevertheless, some economists have 
raised concern about the potential for fraud, and the cost to the 
state budget (septel). 
 
Labor, unemployment and pension reform 
-------------------------------------- 
¶5.  (SBU)  Labor reform is at the heart of Sarkozy' economic reform 
package.  A single work contract designed to replace France's 
bifurcated labor market of under-protected fixed-term and 
over-protected permanent labor contracts, is the central element of 
the reform.  Sarkozy wants to convince his social partners, prior to 
a proposed September summit on employment, of the need to introduce 
a new labor contract.  Based on a report he commissioned as Finance 
Minister in 2004, under a single work contract employers would pay a 
"solidarity" tax into the State unemployment benefit scheme once a 
trial work period had been completed.  The contribution would be 
offset by simplified dismissal procedures and a limitation on the 
right of employees to appeal layoffs to state mediators.  The 
proposals respond to strong consensus among economists (and the 
IMF's Article IV reports on France) that France's overprotected 
labor market is largely to blame for its chronically high 
unemployment rates (currently at 8.4 percent). 
 
¶6.  (SBU)  Sarkozy's proposals on the 35 hour work week get 
headlines.  But he also proposes simplification of simplification of 
the administration of France's unemployment system, and a reform of 
the benefits system by forcing the unemployed to accept work after 
having received two job offers.  In addition, he has called for 
scrapping the costly special pension schemes for certain employees 
in the public sector to enjoy earlier retirement benefits, though 
that battle may be put off until 2008. 
 
A Marshall Plan for Youth in the "Burbs" 
---------------------------------------- 
¶7.  (SBU)  In France's suburbs, the scene of rioting in late 2005, 
Sarkozy has promised a "Marshall Plan" to provide training for 
unskilled youth.  As initially proposed by then-Employment and 
Social Cohesion Minister Jean-Louis Borloo, appointed new minister 
of Economy, Finance and Employment on May 18, the plan would call 
 
PARIS 00002003  002 OF 002 
 
 
for  a three-year program to support some 250,000 "professional 
contracts" for unskilled young people in depressed areas.  These 
one-year contracts would involve working for the minimum wage while 
being trained and would lead to a permanent job, free of payroll 
taxes for two years.  Furthermore, a new National Training Agency 
would take on the task of preparing some 100,000 young people for 
the labor market every year. 
 
No more golden parachutes? 
-------------------------- 
¶8.  (SBU)  Sarkozy has not ignored the upper end of the wage scale 
with his proposed reforms.  The French business community has 
responded positively to Sarkozy's election, with Laurence Parisot, 
the President of the French Employer's Federation MEDEF, pledging to 
"contribute enthusiastically to the writing of a new chapter for 
France."  But Sarkozy's proposal to legislate against so-called 
"golden parachutes" may be less welcome. 
 
¶9.  (SBU)  Widespread outrage in France in the past year over news 
of huge payouts to CEOs of failing companies put the issue front and 
center in the campaign.  Recent news of former Airbus CEO Noel 
Forgeard's 8.5 million euro payout -- just as the group was 
announcing 10,000 job cuts across Europe -- added fule to the fire. 
Many observers doubt that a law banning golden parachutes altogether 
could be made to work without seriously eroding the contract 
structure of a free market system.  But if, as some believe, 
Sarkozy's real purpose is to shame the capitalist class into better 
behavior, it may be working.  The CEO of insurance giant AXA 
announced on May 15 that he would forgo his stock options package. 
And MEDEF President Laurence Parisot was visibly angry in a 
televised response to reports of further golden parachutes in Airbus 
mother company EADS. 
 
The September Summits 
--------------------- 
¶10.  (U)  To discuss these and other issues Sarkozy has proposed 
that four "summits" be held with France's main unions and employers 
in September.  The summits would focus on: unification of the labor 
market and tighter rules on unemployment entitlements, equal wages 
for men and women; work conditions and stress; and, new labor 
representation voting methods and union financing in the workplace. 
(A separate roundtable on the environment will also be scheduled in 
September focusing on GMOs, the carbon tax and a new green tax.) 
 
Comment 
------- 
¶11.  (SBU)  The decisiveness of Sarkozy's victory over Segolene 
Royal, especially if confirmed by a sizeable majority in the June 10 
and 17 Parliamentary elections, would buttress the new President's 
strong mandate for implementing his vision of France's economic 
future.  Still, the breadth of reforms on which he is embarking -- 
and the constituencies he risks offending -- is considerable.  Those 
who have watched Sarkozy operate say he has the political acumen to 
know when to trim his sails to stay on course.  Nevertheless, for 
those who support Sarkozy, the fear is that political missteps on 
any of these dossiers could trigger the kind of street protests that 
have so often sunk French reform efforts in the past.  End of 
Comment 
 
Stapleton