Political banana skin of France’s 35-hour week

There are two subjects that invariably come up at a French dinner party: food and working hours, ever since the former Socialist government introduced legislation to reduce the working week to 35 hours.

Combine the two and you get a pretty explosive cocktail. This has just happened with the controversial decision of the Council of State, one of the country’s highest juridical institutions, to revoke the decision by the subsequent right-wing government to relax the working hours legislation for the 1.2m people employed in the French catering sector.

Until the ruling, employees in the catering business could work 39 hours a week in exchange for more paid leave and other concessions. The logic was that in the service sector it was necessary to give businesses the flexibility to allow employees to work longer hours if they wanted.

But by simply applying the strict letter of the law, the Council of State has thrown a spanner in the works by forcing political parties, and the contestants in next year’s presidential election, to confront the issue.

This is the last thing the politicians wanted. In private, both left and right nowadays agree that introducing a strict legal framework for all sectors of the economy was absurd.

Although most large French companies have learned to live with the system, it has undermined their global competitiveness. France only has to look across the Rhine where German companies like Siemens and DaimlerChrysler have negotiated longer weeks for no extra pay.

It is clearly easier for the right to confront this issue than the left. But it is also difficult for the right because President Jacques Chirac’s Gaullist faction is reluctant to provoke a political storm by interfering with the law.

Yet with its ruling, the Council of State has done France a favour by forcing the issue in the open again. And with the economy growing faster than anyone dared hope a year ago, it is no bad thing to convince voters that France has to adapt and become more flexible – and not be stuck, as has been the case so far, with its “acquis” or acquired rights.

Pinault’s solution

Brussels appears set to give its long awaited approval to the Gaz de France-Suez merger, but the €72bn deal is by no means in the bag yet. The two groups are still in dispute over governance and valuation. GdF’s boss Jean-François Cirelli has threatened to resign if Suez’s Gerard Mestrallet continues to insist on Suez gaining the upper hand in the merged group’s management. Mr Mestrallet now seems to have made some concessions to reassure his GdF counterpart.

Then there is the financial structure of the deal, with GdF and its state shareholder arguing it is already too generous vis-à-vis Suez, while Suez shareholders are demanding a much higher valuation.

The current deal involves the exchange of one GdF share for one Suez share with Suez shareholders receiving a special dividend of €1. Suez argues this reflects its much higher market capitalisation and its far bigger weight in sales.

But GdF will be contributing more than Suez in terms of operating profits, although the current exchange parity values Suez 30 per cent more than GdF. This seems a pretty generous premium to offset what some describe as a partial nationalisation of Suez. After all, the French state will end up with 34 per cent of the combined group.

Suez shareholders, however, are insisting on a higher special dividend of €3 or €4 or, as an alternative, the disposal of the group’s water and waste management business. Mr Mestrallet has so far dismissed any idea of selling his water business. But GdF would probably welcome such a move that would entail an inevitable restructuring of the parity.

Now enter French billionaire François Pinault, who says he is ready to buy the Suez water business. Many consider his eruption on the scene as complicating even further the process. Yet rather than being an additional problem, Mr Pinault says he could be the solution to the current impasse. He may be right.

Double standards

When it comes to economic patriotism, the Germans lack finesse. Take Volkswagen. The car group is orchestrating a three-way merger in the truck sector but is protected by its two core shareholders, Porsche and the state of Lower Saxony.

Then there is EADS. The Germans are doing all they can to gain greater influence in the troubled Franco-German aerospace group. A new French chief operating officer was supposed to have been appointed at Airbus this weekend, but this has been delayed because the Germans are seeking in compensation more high-ranking German management jobs in other parts of EADS.

But top prize for double standards goes to Eon, the utility trying to acquire Spain’s Endesa. The European Commission wants Germany to scrap its golden share in the Eon-Ruhrgas company. Eon argues this is not a golden share because it involves only a part of its extensive businesses. That may be so, but it is still quite a dissuasive poison pill.

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