Hollande Discovers Schroeder With U-Turn on Car Sector Cuts

When PSA Peugeot Citroen SA announced thousands of job cuts and France’s first car-plant closing in 20 years in July, Industry Minister Arnaud Montebourg called the plan “unacceptable.” Six months on, he says it’s inevitable.

“We haven’t found any other solution,” Montebourg said yesterday on RTL radio. “We don’t see any other way.”

The taming of Montebourg -- who in November threatened to nationalize an ArcelorMittal steel plant to block its shuttering -- is the latest evidence of the reality of France’s economy curbing the ambitions of President Francois Hollande’s Socialist government. With France teetering on the brink of recession, facing joblessness at a 15-year high and the government having pledged to shrink its budget deficit, Hollande may be forced to go the way of former German Chancellor Gerhard Schroeder.

Germany’s last Social Democrat leader’s so-called Agenda 2010 package made it easier to fire staff, forced those out of work for more than a year to accept any reasonable job offer and reduced long-term benefits. German carmaker VW in 2006 extended the work week by six hours with no extra pay and cut 20,000 jobs in western Germany, or 20 percent of its workforce in the region, at its Volkswagen brand. Operating profit doubled in 2007.

“At some point, you have to take reality into account or bankruptcy is assured,” said Nicolas Tenzer, director of the CERAP political studies institute in Paris. “This is the realism phase of Hollande’s government.”

Shriveling Market

Peugeot, France’s biggest carmaker, wants to eliminate 11,200 jobs, or 17 percent of its workforce in the country, over two years. Its smaller French rival Renault SA is slashing staff by 7,500 through attrition, in a savings plan announced Jan. 15.

The two companies are suffering from a European car market that has shrunk for five years and is still contracting.

“I’m not thrilled about it,” Montebourg said of the Renault announcement three days after it was made. “But the market is down 20 percent, what do you want us to do?”

The minister has found himself scrambling to put out other fires. Telecommunications equipment maker Alcatel-Lucent is eliminating 5,500 posts, Goodyear Tire & Rubber Co. is closing its main French plant with the loss of 1,173 jobs, Air France is reducing 5,000 positions and drugs maker Sanofi wants to cut about 900 jobs.

Between 2009 and 2011, about 120,000 net jobs were lost in France, according to a report published late last year by researcher Trendeo, with the reductions accelerating in 2012.

A Traitor

Faced with such developments, Montebourg has sought to find ways for the government to intervene and appease the Socialist Party’s political base.

The threat in November to nationalize the Florange operation in northeastern France of ArcelorMittal, the world’s largest steelmaker, -- initially backed by Hollande -- was one such effort.

Arcelor had announced a plan to close two blast furnaces and cut about 600 jobs at the site. Ultimately Hollande didn’t see his minister’s threat through, reaching a compromise with the company to shut the furnaces while finding other positions for the employees. The solution angered workers, with Edouard Martin, a representative from the CFDT union, saying in December, “We now have two enemies, Mittal and the government.”

Although Montebourg still tries to find a role for the government -- saying yesterday on RTL radio that the state may buy a minority stake in Petroplus Holding AG’s Petit-Couronne oil refinery that risks being shut down -- his nod on the Peugeot plan resulted in his being branded a traitor.

‘Common Cause’

“Last June, he was like our lawyer,” Jean-Pierre Mercier of the CGT union at the Peugeot Aulnay plant northeast of Paris said yesterday on Europe 1 radio. “Now he’s making common cause with Peugeot’s management.”

Montebourg sought to explain his position today, telling Parliament that “we are unable to save Aulnay because there are other plants” that need to be protected.

The unions’ sense of betrayal stems from the fact that they helped put Hollande in power last May. During the campaign, Hollande stood atop a union truck at the ArcelorMittal Florange plant and pledged to protect the site.

“Montebourg reminds people of things said during the campaign, he haunts the government,” said Laurent Dubois, a professor at the Institute of Political Studies in Paris. “He was useful during the campaign, now he’s embarrassing.”

Hollande himself has had to put on a more business-friendly face, setting out plans for a 20 billion-euro ($27 billion) payroll tax cut in November and then brokering an accord with three of five unions in January for greater labor flexibility.

‘Audacious, Ready’

Although not going as far as Schroeder, Hollande has had to seek ways to make a break from well-worn Socialist policies.

“The assessment of a need for change may be the same but Hollande certainly never took Schroeder for reference,” Hubert Vedrine, a Socialist who was foreign minister from 1997 to 2002, said in an interview in December.

Germany’s relative resistance to the euro crisis and the competitiveness of its manufacturers can partly be traced to Schroeder, who cut taxes, unemployment benefits and health-care services from 2003 in what was seen as the biggest change to the German welfare system since World War II.

Ten years ago, German unemployment stood at 9.5 percent, on its way to 11.4 percent in 2005, according to International Labor Organization standards. It is now 5.5 percent, compared with 10.3 percent for France.

Hollande, who has asked to be judged on his economic record when his current mandate expires in 2017, is contending with more than 3 million people looking for work in France, the highest number since January 1998.

He’s seeking to encourage companies to hire again. Policy wise, even Montebourg is starting to look ahead.

“Our industrial strategy has two legs, one defensive, one offensive,” he told journalists last week in Paris. “The defensive one is case by case. The offensive one is about the strategy of the future, to show that France is a country that is audacious and ready to take risks.”