The French "street" has won again, forcing the government to back down on modest labor reforms (FT) aimed at tackling the country's 22 percent youth unemployment rate. But weeks of massive protests aimed at preserving the status quo have unsettled observers on both sides of the Atlantic who worry about what this case means for the economic health of Europe. CFR Senior Fellow Charles Kupchan tells cfr.org's Bernard Gwertzman in a recent interview that the labor protests, combined with the French "no" vote on the European constitution and other moves, presents Europe with "its greatest political crisis, probably since the end of World War II." There are now serious doubts about France's ability to adjust to globalization, as well as the pressures from an "enlarged EU, a common currency and the realities of technology," writes the Hudson Institute's Marie-Josee Kravis in the Wall Street Journal.
The demonstrations were aroused by a law that would make it easier for employers to fire employees younger than twenty-six. The measure, known as the First Job Contract, was an attempt to gain flexibility in a labor market grown rigid with entitlements. Among the intended beneficiaries were North African immigrants in France's poor suburbs, who staged their own riots late last year to protest a lack of jobs. To some observers, the youthful clamor in the French streets over the past two weeks showed a public out of touch with changing world affairs (Foreign Policy). But also at work is French skepticism about the virtues of capitalism. A recent public opinion survey of twenty nations conducted by the University of Maryland found France was the lone country where a majority did not agree that the free-enterprise system is the best choice. Only 36 percent of French favor a free-market economy, compared with 74 of Chinese and 70 percent of Indians.
In the rest of the European Union, policymakers have repeatedly cited the need for flexible labor measures for both new and old members of the bloc. As France struggled to implement its labor reform this spring, a number of commentators held up Denmark as a model. A Danish Social-Democrat government in 1993 introduced so-called "flexicurity" reforms (EurActiv.com) that eased restrictions on employers' hiring and firing practices but provided generous unemployment benefits to ease workers' transitions to other jobs. Denmark has reduced unemployment from 12 percent to 5 percent since introducing the reforms. Britain is another "old Europe" democracy that has benefited from labor reforms. Now, as many as 15,000 French people annually move across the Channel to Britain, attracted by its healthy job market (The Guardian).
France can certainly boast a strong private sector, including many companies that have benefited from globalization. But its unwillingness to enact certain structural reforms, especially involving labor, have given it a relatively poor ranking on the World Economic Forum competitiveness index. Two officials with the Federal Reserve Bank of Dallas write that recent data show the more that countries adopt policies responsive to an integrated world economy—such as reforming labor laws—the faster they achieve economic growth, lower inflation, and higher incomes (NYT).
EU Trade Commissioner Peter Mandelson, speaking at CFR last June, said Europe's leaders need to do more to create confidence among Europeans to accept change and recognize the value of globalization rather than view it as "some sort of destructive tidal wave that's going to sweep over them and destroy their lives."