What’s crushing France’s crucial industry?
France was the number one visited country in the world with 85 million foreign visitors last year. The Paris region (Ile-de-France) was swamped by 16 million. In Ile-de-France alone, the jobs of half a million people depend on tourism. It’s the region’s largest industry. Tourism accounts for 7% of the French economy and for 13% of the economy of the Ile-de-France.
France hosts the Euro 2016 soccer tournament this year. It will kick off on June 10 and last about a month, with games played around the country. About 2.5 million spectators are expected.
But last November, terrorist attacks killed 130 people in Paris. This followed the January 2015 attacks at Charlie Hebdo magazine and a Jewish supermarket. The attacks in March this year in Brussels – less than 1.5 hours by train from Paris – reignited the global headlines. And now, after the headlines have finally receded, it’s a tumultuous, three-month bout of occasionally violent labor unrest, whose images have been gracing the media around the world.
And the inevitable happened:
- Hotel bookings by Japanese tourists – who’re somewhat squeamish about tumults – collapsed by 56% in the first quarter from a year earlier, according to a statement by the tourism board of Paris on Monday.
- Hotel bookings by Russians plunged 35%.
- Hotel bookings by Chinese tourists, on whom all hopes had been pinned, the biggest growth factor in the industry, with a record 1.2 million showing up in Paris last year – well, they fell 14%.
“The start of 2016 is still feeling the disastrous consequences of the attacks in 2015,” the statement said. And then the social unrest: “The scenes of guerrilla-type action in central Paris, beamed around the world, reinforce the feeling of fear and misunderstanding from visitors in an already angst-filled climate.”
Hotel bookings for June through August have plunged 20% to 50% year-over-year, Evelyne Maes, head of the UMIH-Paris-Ile de France hotel federation, told Reuters.
Last week, the French trade association GNI had warned of “massive” cancellations by foreign visitors, adding: “A strike of that scope a few weeks before Euro 2016 and at the heart of the tourist season is more than unacceptable.”
For the trade unions that are now trying to paralyze significant parts of the economy, the big sin was that the Socialist Party under Socialist President François Hollande, the very folks that they helped vote into power, tried to reform France’s infamous labor law.
Hollande’s reign has been wrecked by an unemployment fiasco. When he assumed office in May 2012, the official unemployment rate had been rising to a near catastrophic 9%. But during his first year in office, rather than dropping based on his policies, the unemployment rate breached 10%, and now, years later, hovers at 10.2%.
Part of the problem in France is that businesses are reluctant to hire because the labor law makes it expensive and cumbersome to fire someone. Hence, hiring is associated with huge risks. And so companies have not been hiring.
The labor law reforms would make it less treacherous for companies to fire employees. It would still not be easy. But it would be more possible. The law would also lengthen the sacred 35-hour work week. That a Socialist government, pushed to the wall by an unemployment fiasco, dared to even think about reforming the labor law has touched a nerve with the unions.
So last week, after months of various street protests and associated chaos, workers at France’s eight refineries blocked or disrupted production. Port workers paralyzed oil imports at the Mediterranean ports and at Le Havre on the English Channel. Others blocked fuel depots.
Suddenly, nationwide gasoline and diesel shortages made the headlines. The media showed continually updated maps with gas stations that still had either gasoline or diesel or both. This lasted until the government sent in the police to remove protesting workers.
None of this made appealing headlines for the Japanese dreaming about a romantic week in Paris.
Now labor unions are planning to paralyze trains across France starting on Tuesday, the metro of Paris starting on Thursday, ports too, and perhaps even airports as air traffic controllers might go on strike on Friday. Transportation mayhem is guaranteed.
They’re targeting tourists! Where it hurts France the most! It’s part of their well-established extortion method. They’d rather unemployment soared to 15% than make it feasible for businesses to hire more workers.
And to top it off, the CGT labor union is agitating for another mega-protest on the streets of Paris on June 14, four days into the Euro soccer tournament! The moment of maximum pain.
“There is still time to save the tourist season by putting an end to these blockades that are being shown the world over,” pleaded Frederic Valletoux, head of the Paris tourist board. “It’s the entire tourism and leisure network that is penalized.”
The Socialist government is buckling under the pressure. So it sent Foreign Minister Jean-Marc Ayrault, Paris Mayor Anne Hidalgo, and Ile-de-France region Vice-President Jerome Chartier to the Eiffel Tower, jointly, to demonstrate to the world that Paris is safe – that they in fact made it all the way to the Eiffel Tower without problems.
“I believe that a spirit of responsibility will prevail,” Ayrault said, when asked about the threatened chaos during the Euro tournament. “We will find a solution through dialogue,” he said. “Our country has a real tradition of hospitality.”
And Prime Minister Manuel Valls reportedly spoke with the head of the CGT union. Compromise is likely. The reform in the labor law may be dialed back. And the message will stick for French politicians: no matter how terrible the unemployment fiasco gets, don’t even think about reforming the obvious.
So France, with all its structural problems, isn’t going to be helped by negative interest rates, the drug that the ECB has been prescribing. “Free” capital isn’t going to induce French businesses to hire more people than they absolutely have to. Many can move their operations to the UK or other countries with more flexible labor laws.
But there’s one thing that the ECB’s negative interest rate policy is doing: it’s sending money fleeing. Read… The NIRP Refugees Are Coming to America
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.