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January 30, 2020

Trade union politics on balancing France's pension fund

French trade unions and employers are still divided over the pension system as they start their negotiations today over how the new system is to be financially balanced. If no common plan is agreed by April, the government will take back the reins. 

Édouard Philippe agreed to let trade unions and employers come up with their own cocktail of measures to finance the €12bn deficit the fund faces in 2027, and to ensure a balanced pension fund subsequently. The government granted this last round of negotiations in exchange for scrapping plans to raise the full pension retirement age to 64 for the current generation. But that will hold only if unions and employers find a financial alternative to balance the fund. But trade unions are far apart on this matter. The radical CGT and FO insist on a full withdrawal of the pension reform and do not accept any savings measures to balance the fund. The moderate CGDT was the one asking for this negotiation window to avoid the rise in retirement age. They are in favour of the unified point-based pension system, but want to leave their mark on the draft. They are presenting 40 measures to the National Assembly, which opens its debate on the pension reform draft next week. The employers excluded any rise in pension contributions, arguing that it would be detrimental for their competitiveness and their capacity to create jobs. If trade unions and employers cannot find a solution by April, the government will get back into the ring like it did when negotiations about the unemployment insurance failed to produce any satisfactory result. The stand-off over the pension reform is far from over yet.

Firefighters, meanwhile, succeeded to get enough concessions from the government to stop their protest movement, after violent clashes with the police earlier this week. The interior minister announced that their hazard premium will rise from 19% to 25% as of next year, and that they will have special treatment under the new unified pension system. They could be allowed to retire at 57 with an additional contribution. The unified pension system gets more and more exceptions as the challenges continue.

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January 30, 2020

Johnson ready to let go of frictionless trade

We will have a special Brexit edition tomorrow to mark this seminal event of modern European history. This morning we noted the first reports in the UK media about Boris Johnson’s negotiating goals for the trade talks, which now won’t start until early March. The Telegraph reports that Johnson now accepts trade friction and border controls as a price for regulatory freedom.

We keep an open mind about eventual outcomes. We think the realm of possibilities ranges from a failure to agree a trade deal to a deal that keeps several sectors closely aligned to the EU's single market. Michel Barnier has told ambassadors that he is seeking to subject the UK to EU state-aid rules. We would characterise this idea as a deal breaker. If the EU insists on regulatory compliance as the price for zero tariffs, we think the UK would be rational to leave the EU without a trade agreement. 

We don’t therefore believe that the EU’s negotiation position can simultaneously be maintained and succeed. Something will have to give. In view of our Germany/Huawei story above, we would urge readers not to underestimate the mercantilistic instincts of the EU’s trade-surplus addicts when confronted with a tariff border along the English channel.

The sources of the Telegraph story also specifically refer to the EU’s demand for regulatory alignment in case of a tariff-only deal. They says, effectively, that Johnson would be ready to walk away. We find it interesting how he phrases his position with an emollient language. Johnson’s position, however, is not worked out in detail. The news reports merely refer to a decision of principle that, to him, sovereignty matters more than frictionless trade. 

In the UK, the debate has long moved away from open borders. We agree with the comment made by a former Downing Street chief of staff who said that the political landscape in the UK has completely changed with the recent elections. We don’t get a sense that this shift is widely understood in Brussels. 

There is room for compromise. But there is no question of the ECJ ruling on UK labour-market or environmental standards. Instead, the two sides could still include a chapter that commits them to respect international labour and environmental standards, fortified by arbitration panels and a system of fines against those who breach what is agreed. The deal could include early termination clauses.

Given the negotiation time frame, we believe the best hope would be a multi-level process. This would start with a tariff-only deal by the end of this year, and special transitional regimes for sectors in which both sides have an interest in maintaining close relations. One such sector is airlines. British Airways and Iberia have a co-operation that both sides may want to maintain in a post-Brexit regime.

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