Hollande Challenges Unions on Labor Law as Stagnation Sets In

French President Francois Hollande challenged unions to allow companies greater labor flexibility, taking on his traditional allies to promote economic expansion as he cut growth forecasts to below 1 percent.

Hollande gave himself a two-year window to fix the economy as he announced a freeze in government spending and 30 billion euros ($38 billion) in deficit-reduction measures to be included in next year’s budget to reach his fiscal targets.

Speaking in a nationally televised interview on TF1 late yesterday, France’s first Socialist president since 1995 said his labor proposals, which he didn’t outline, would make companies more competitive. He gave unions and business leaders until the end of the year to conclude a deal in expanding corporate flexibility while beefing up worker protections against firing.

“If this historic compromise is reached by year end, this reform will be given the force of law,” Hollande said. “But if the partners can’t agree, then I’m sorry, but then the state will assume its responsibilities.”

Hollande’s policy pronouncements were overhadowed by headlines in yesterday’s newspapers that showed his standing in polls declining and that France’s richest man, Bernard Arnault, was seeking dual nationality in Belgium.

Arnault, whose wealth is valued at $25.7 billion, issued a statement yesterday saying his bid was a “personal action” and “must not be interpreted politically,” as a protest against Hollande’s planned 75 percent tax on incomes above 1 million euros.

Hollande said yesterday Arnault will pay his fair share and that there will be no exceptions to the levy on wealthy people.

Economic Slowdown

Cutting the 2013 growth forecast to 0.8 percent from 1.2 percent, Hollande also outlined the measures needed to reach his deficit goal of 3 percent of gross domestic product, down from a projected 4.5 in 2012.

The budget measures outlined by Hollande include 10 billion euros in spending curbs; 10 billion euros in corporate taxes and 10 billion euros in levies on individuals.

With unemployment at a 13-year high of 10.2 percent and companies such as PSA Peugeot Citroen (UG) announcing sweeping job cuts, Hollande is being squeezed between his campaign promises and the inexorable economic slowdown as Europe fights the debt crisis.

A BVA survey published in Le Parisien yesterday put his approval rating at 40 percent. On May 31, two weeks after he took office, the number was 62 percent.

“The weaker the economy, the less credible the government’s budget-deficit plans become and the more likely it is that tax increases will be favoured over more politically contentious spending cuts,” Nicholas Spiro, managing director of London-based Spiro Sovereign Strategy, said in an e-mail. “The politics of fiscal austerity in France are becoming more and more difficult because of the bleaker prospects for growth.”

To contact the reporters on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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