Chirac retreats on youth labor law

by Aude Lagorce
LONDON
Law to be scrapped, PM de Villepin to stay

Bowing to pressure from students and unions, French President Jacques Chirac on Monday unveiled plans to scrap a controversial youth-labor contract that spawned weeks of strikes and led to a complete political stalemate.

The first-job contract, also known as CPE, will be replaced by an initiative focused on youths from troubled backgrounds.

"The president of the republic has decided to replace Article 8 of the law on equal opportunities with measures in favor of the professional insertion of young people in difficulty," a statement from Chirac's office said.

The move comes as a terrible blow to Prime Minister Dominique de Villepin, who introduced the CPE and vowed to stand firm regardless of pressure from students and the unions.

The CPE would have made it easier for companies to hire and fire workers under 26.
It was introduced to tackle France's number one social problem: that one young person in five is unemployed.

Its opponents claimed it would have created systemic insecurity by making it more difficult for young workers to get a mortgage, for instance. In addition, they said the CPE would scupper France's founding principles of solidarity and equality by treating workers differently depending on their age.

De Villepin's authority has been gravely damaged by the crisis and he may not recover from the government's latest turnabout. He is scheduled to speak later Monday. At 25%, his approval rating has halved since December, according to a poll by Institut LH2.

Chirac, 73, also likely won't emerge unscathed from a confrontation that fanned weeks of disruptions at universities and demonstrations gathering 1 million to 3 million people.

He begins his 11th year as president next month with approval ratings at three-year lows.

Chirac alienated some of his supporters earlier this month when he decided to enact the law but immediately suspended it to give lawmakers the chance to meet with unions and find a way out of the crisis.

Former president Valery Giscard d'Estaing criticized Chirac's strategy in an interview with French newspaper le Journal du Dimanche.

"It's high time to exit this quagmire,'' he wrote in an article describing it as "heart-wrenching'' to see France in such disarray. "The enemies of France have viewed these images with delight, and her friends with consternation."

Some economists deplore the impact the recent crisis has had on France's image abroad and worry that it will discourage investment.

"With the refusal of the CPE and the confirmation that France is incapable of carrying out reforms, more and more companies are going to continue or start to invest and hire massively....abroad," Marc Touati, an economist with Natexis Banques Populaires wrote in a note to clients.

He added that while investment in France reached 40 billion euros in 2005, it could fall by 10 billion in 2006.

"Given the recent events in France, foreign companies would really have to have become altruistic to invest heavily in France," he said.

Emmanuel Ferry, chief economist at Exane, doesn't see such a significant impact on investment, but he agrees that the CPE crisis had blemished the image of France further.

"The main consequence of this story is that of the impact it will have on the political landscape in the 2007 general elections. Until then, the capacity to carry
out any reform has been annihilated," he said.

He added that thankful the markets have been little influenced by the recent political deadlock.

"But the CPE crisis is yet another symptom of the social, political and institutional malaise France is experiencing," Ferry concluded.