April 10, 2006

Chirac scraps youth job law

By Matthew Bigg

PARIS (Reuters) - French President Jacques Chirac bowed to
weeks of angry protests on Monday and scrapped a youth job law
in a climb-down that undermined his prime minister and handed
victory to opponents of the law.

Chirac's decision was a personal blow to Prime Minister
Dominique de Villepin, who had championed the First Job
Contract (CPE) as a vital job-creating reform of the French
economy but who had seen his popularity slump as mass
opposition grew.

The government U-turn over the CPE makes it unlikely France
will attempt broader reform of its highly regulated labor
market before 2007, economists said.

Villepin said in a television address he regretted that the
strikes and street protests showed the CPE could not be applied
but gave no hints about his own political future, on the line
over his handling of the dispute.

"The necessary conditions of confidence and calm are not
there, either among young people, or companies, to allow the
application of the First Job Contract," Villepin said, adding
he would open talks with unions on youth employment.

A protest march in Paris planned for Tuesday should show
whether student anger over the contract has abated.

"Today is a defining victory but there are still many
issues outstanding," said Bruno Julliard, who heads the UNEF
student union. He was referring to other parts of the
government's employment policies but did not spell out future
student action.

Villepin had said the CPE would reduce youth unemployment
of 22 percent. Lack of jobs is the country's number one
political issue and a major reason for weeks of rioting in poor
suburbs late last year.

The "easy hire, easy fire" CPE would have allowed firms to
sack workers under 26 without giving a reason during a two-year
trial period.

The prime minister's poll ratings plunged as opposition to
the measure mounted, damaging his chances of becoming the
ruling UMP party's candidate for president in elections in

"The president ... has decided to replace article eight of
the equal opportunities law with measures to help disadvantaged
young people find work," the presidency said in a statement.


Chirac and Villepin were careful to say that the CPE, part
of a wider law on equal opportunities, was being "replaced"
rather than repealed. Unions who opposed the measure, arguing
it would create insecurity for young workers, declared victory.

"Perhaps we will drink a drop of champagne. This is an
undeniable victory for a social movement," said Gerard
Aschieri, secretary of the FSU union.

The new measures include increased financial incentives to
employers to hire people under 26 who face the most
difficulties in getting access to the labor market, Employment
Minister Jean-Louis Borloo said in an interview with Le Monde

That would apply to approximately 159,000 young people
currently hired under government-subsidized job contracts and
the cost to the government would be around 150 million euros
($180 million) in the second half of 2006, Borloo said.

The measures, financed by an increase in tax on tobacco,
could be introduced in parliament as early as Tuesday, said a
senior UMP deputy but there were doubts over further reform.

"The question is whether this has signed away the
possibility of reform in the longer term," said David Naude,
economist at Deutsche Bank.

Marchers vilified the prime minister and his rival for the
UMP presidential candidacy, Interior Minister Nicolas Sarkozy,
but analysts said Monday's decision was especially damaging for
Villepin. Chirac is not expected to run in the 2007 election.

"The presidential hopeful Villepin is practically dead, the
prime minister Villepin is in big difficulty," said Christophe
Barbier of the L'Express magazine.