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Sarkozy unveils job-saving package as downturn bites

France's President Nicolas Sarkozy is heading into an election campaign as unemployment is on the rise.


French President Nicolas Sarkozy promised on Wednesday to spend more than €400-million ($520-million) on saving jobs as he tries to stop spiralling unemployment and an economic downturn from ruining his chances of re-election.

With France on the brink of recession and stripped of its triple-A credit rating, Mr. Sarkozy met trade union leaders for talks aimed at producing a series of measures he can unveil before the presidential election in April and May.

After four hours of negotiations, Mr. Sarkozy said the state would increase its contributions for job training and a little-used partial unemployment scheme designed to help companies keep workers employed during a downturn.

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The €430-million outlay would not add to France's deficit as it would be covered by contingency funds in the 2012 budget, and it could be doubled if France tapped a European fund for job training, he said.

"The situation on the employment front is extremely worrying, which compels us to take strong and speedy decisions," he said. "We need to do everything we can to avoid severing the link between workers and their employers."

Mr. Sarkozy, who said he would wait until the end of January to unveil deeper reforms, added that France would set up public investment banks for industry with the aim of making French firms more competitive.

Leaders of France's biggest unions said they backed the "emergency measures" but would resist any attempt to make deeper changes to the labour system so close to an election. These include a scheme to reduce social fees on hiring workers and make up the shortfall by raising value-added tax.

"Where we disagree is on the aspect of saying that labour costs are the real cause of unemployment," said Bernard Thibault, head of the CGT union. "We are in fundamental disagreement on this point."

Protests followed quickly. In Paris, about 2,000 protesters in Paris chanted "Resistance against the ratings agencies!" and "The financial markets need to be put on a diet!"

Pressure on Mr. Sarkozy to deliver reforms intensified after the Standard & Poor's agency identified "labour market rigidities" as one reason for its lowering of France's credit rating to double-A-plus last week.

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The conservative President faces gathering economic gloom – with French jobless claims at a 12-year high – less than 100 days before an election which polls show him losing to Socialist candidate Francois Hollande.

His dash for reform aims to repeat the success of Germany's "Kurzarbeit" approach, a policy of shortened working hours which helped to save jobs in 2008-9 at a cost of about €6-billion to unemployment insurance funds.

In France, the cost of partial unemployment is divided between insurance companies and a direct government subsidy. When Wednesday's measures are enforced, the state's outlay will increase to €140-million.

France's UNEDIC unemployment fund, which is jointly administered by unions and employers, will have to raise its contributions to match. But unions have yet to clarify how the extra cost would be managed, with UNEDIC already running an €11-billion deficit in 2011.

Before Wednesday's meeting, economists had doubted there would be progress on areas they believe need reforming, from restrictive labour laws to the 35-hour work week and the role unions play in pay negotiations.

Critics said Mr. Sarkozy has a habit of hurrying into reforms and then watering them down to avoid conflict with unions.

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"This is the classic scenario where he rushes into a deal at the last minute without taking enough time for consultation or following through," said economics professor Pierre Cahuc at France's elite Polytechnique school.

"I'm extremely pessimistic about the chances of either the unions or the government pushing the job market in the direction of a real reform," he added.

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