A French Lesson in Blackmail
One European country has a prime ministerwho says his country's labor laws are outdated, bureaucracy is throttling the jobs market, and parliament needs to quit dragging its feet and embrace his reform agenda. A second European country has just seen its flagship national airlinecapitulate on its business plans after a strike by its pilots. Which would you invest in?
Air France has been held hostage by its pilots over plans to develop a no-frills air service outside of its bases in France and the Netherlands. With 10 days of labor strife at a cost of 20 million euros ($25 million) a day, the pilots have blackmailed -- there really isn't a better verb -- the company into abandoning its strategy to better compete with low-cost carriers that are stealing business on short-haul European routes from people who don't care about free peanuts or baggage allowances.
The not-so-invisible hand of the French government, which owns 16 percent of the airline, appears to have ended the impasse after saying yesterday that the expansion plan was dead. The meddling echoes France's interventionism earlier this year, when it made General Electric's $17 billion bid for the energy assets of Alstom SA conditional on the government getting a 20 percent stake in the venture -- "keeping Alstom French," according to the then Economy Minister Arnaud Montebourg.
Contrast these attitudes with the pledges being repeated by Italian Prime Minister Matteo Renzi. His country is in recession; Italy's unemployment rate has been stuck above 12 percent since the start of the second quarter of 2013. With members of his own Democrat party threatening to block labor-market reforms -- Italy has 2,100 laws, but needs no more than 45, Renzi said this week -- the prime minister has said he may seek a decree to introduce change.
"Compromise is not a bad word, but this is not a time for compromise but for courage," he told Bloomberg Television's Erik Schatzker yesterday. The battle "is on the left, it's within my party."
To be sure, Renzi has been rather long on promises and short on implementation since taking office in February. But at leasthe seems to recognize his country needs to change to take account of Europe's straitened economic circumstances. France, meantime, seems stuck in a bygone age, relying on a playbook that's out of date and no longer fit for the purpose. Investors should take note.
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