VZCZCXYZ0003
PP RUEHWEB

DE RUEHFR #0378/01 0721729
ZNR UUUUU ZZH (CCY AD3F8A9F MSI5063-695)
P 131729Z MAR 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC PRIORITY 5773
INFO RUEHRO/AMEMBASSY ROME PRIORITY 9064
RUEHC/DEPARTMENT OF LABOR WASHDC PRIORITY

UNCLAS PARIS 000378 
 
SENSITIVE 
SIPDIS 
C O R R E C T E D COPY CAPTION 
STATE PLEASE PASS DRL 
LABOR PLEASE PASS ILAB (LIPKE) 
 
E.O. 12958: N/A 
TAGS: PREL ELAB EIND ETRD SOCI FR
SUBJECT: FRANCE FACES TOUGH LABOR CLIMATE IN RUNUP TO G8 
LABOR MINISTERS MEETING 
 
REF: STATE 15333 
 
This message in sensitive but unclassified.  Please 
handle accordingly. 
 
Summary 
------- 
 
¶1.  (SBU) The financial crisis has dramatically 
reversed a once positive employment story in France. 
After hitting a 25-year low of 7.2 percent in mid- 
2008, the jobless rate climbed to 7.8 percent at the 
end of 2008 and could reach 9.8 percent during 2009. 
In the context of a gloomy socio-economic mood -- 
there was a nationwide general strike on January 19 
and another is planned for March 19 -- President 
Sarkozy and Labor Minister Brice Hortefeux have 
slowed some reform initiatives (such as eliminating 
Sunday blue laws and instituting educational 
restructuring that would cut jobs) in favor of 
demand-side stimulus measures to complement the 
broader package of investment measures unveiled by 
President Sarkozy in late 2008.  The stimulus effort 
centers mainly on tax cuts and a boost in 
unemployment benefits.  Nonetheless, Hortefeux 
remains committed to President Sarkozy's plans to 
create a more competitive, market-oriented economy 
in France.  At the March 29-31 Rome meeting, he will 
be open to U.S. ideas on how to address the 
financial crisis, but his primary concern will be to 
find ways to stem the deterioration of France's 
employment landscape.  End summary. 
 
Unemployment Rising Again in France, Youth Hurting 
--------------------------------------------- ----- 
 
¶2.  (U) After hitting a 25-year low of 7.2 percent in 
mid-2008, France's unemployment rate is on the 
upswing, hitting 7.8 percent in mainland France in 
December 2008.  Including France's overseas 
possessions, the unemployment rate was 8.2 percent. 
Most economists expect a significant deterioration 
in the unemployment situation when the next 
statistics are published in April (France reports 
its unemployment rate on a quarterly basis).  At its 
last peak in 1997, unemployment in mainland France 
reached 10.9 percent.  As in prior economic 
downturns, the unemployment rate among low-skilled 
labors and youth is especially high.  The jobless 
rate for people under the age of 25 increased to 
20.4 percent in December 2008, up from 18.3 percent 
a year earlier.  The European Commission predicted 
in January that French unemployment overall could 
reach 9.8 percent in 2009 and reach 10.6 percent in 
¶2010. 
 
¶3.  (SBU) In the past, France's stubbornly high 
unemployment rate has been attributed to its rigid 
labor market.  To encourage hiring, the French 
government has invented short-term probationary work 
contracts during the last decade, making it easier 
for businesses to hire and fire workers.  One of 
President Sarkozy's most important reforms, passed 
in 2007, exempted all overtime wages (above 35 hours 
per week) paid by firms with under 10 employees from 
income tax. 
 
Stimulus on the Front Burner 
---------------------------- 
 
¶4.  (SBU) The government has also slashed its GDP 
projections to minus-1.5 percent for 2009, a 
forecast considered optimistic by many private 
economists.  On the heels of a general strike in 
late January, which saw some 1 million protesters 
(mostly public sector workers) take to the streets 
to express their concern about how the economic 
crisis is affecting them, the president announced 
February 18 a new 2.6 billion euro (USD 3.3 billion) 
supplemental stimulus package targeted at lower 
income families, the temporarily unemployed and 
youth.  The plan comes in the wake of a 26 billion 
euro (USD 33 billion) stimulus package announced 
last December that focused on creating jobs through 
infrastructure programs and accelerating tax refunds 
for business. 
 
¶5.  (U) The new plan's principal points include: an 
LABOR MINISTERS MEETING 
 
income tax cut for some 4 million low-to-middle 
income households; an unemployment benefit hike 
guaranteeing 90 percent of net pay for those facing 
temporary layoffs (a problem currently plaguing the 
French auto industry); a one-time payment of 500 
euros (USD 633) for job seekers under the age of 25 
who have not worked enough to be eligible for 
traditional unemployment benefits; a 200 euro 
voucher (USD 253) to subsidize home care for the 
disabled; and a 150 euro (USD 190) school allowance 
that will be paid in June to about 3 million 
families.  Finally, the government will also set up 
a "Social Investment Fund" with an initial 800 
million euro (USD 1 billion) to finance vocational 
training for workers.  The fund could receive as 
much as 3 billion euros (USD 3.8 billion) in total. 
Other possible measures, including profit-sharing, 
will be the subject of continued negotiations 
between unions and employers.  However, some private 
economists worry that French consumers may boost 
savings rather than consumption during 2009. Another 
general strike has been scheduled for March 19. 
 
Labor Minister Hortefeux: A Top Sarkozy Confidant 
--------------------------------------------- ---- 
 
¶6.  (SBU) Facing these thorny issues is one of 
President Sarkozy's closest confidants, Labor 
Minister Brice Hortefeux.  Hortefeux is new on the 
labor brief, having moved to the job in January as 
part of a minor cabinet reshuffle after heading the 
Ministry of Immigration for the first 18 months of 
Sarkozy's presidency.  A member of the governing 
center-right UMP party, Hortefeux believes a market- 
friendly economy remains the best way to ensure 
French prosperity.  He has vocally supported 
President Sarkozy's initiatives since taking the 
reins at Labor, emphasizing in a March 9 television 
interview that the tax exemption on overtime pay is 
a "wonderful initiative" that will help France react 
to and emerge from the economic slowdown.  While 
Hortefeux will be open to hearing U.S. ideas on 
labor issues, his priority coming into the March 29- 
31 Rome meeting will likely center on ensuring that 
any multilateral steps taken to address the 
financial crisis have no negative effect on France's 
employment landscape. 
PEKALA