SIM REPORT: Western & Northern Europe

Issue 01, 10 october 2019

FRANCE: In pursuing ambitious pension reforms, President Macron faces his toughest challenge yet 

Introduction

French President Emmanuel Macron will face opposition from trade unions and political rivals alike as his government moves forward with plans to reform the country’s complex and fragmented pension system.

Pension reform – why now?

Plans to change the country’s pension system are part of a range of reforms promised by Macron to revitalise the economy during his presidential election campaign in 2017.  Proponents of the plans say that reforming the pension system – which essentially aims at increasing the working population amid high life expectancy levels – will help alleviate pressure on public finances and help tackle budget deficits.   

The current plans, announced in July, involve combining 42 existing pension schemes into one universal system. If approved, the reforms will come into effect from 2025. The plans will likely mean that some workers receiving pensions in the future will receive these at lower levels than what they obtain through existing schemes.

Given the comfortable majority Macron’s LaRem party currently enjoys in the National Assembly – the lower house of France’s bicameral parliament – he faces little legislative challenges in passing the pension reforms. A vote is expected in parliament early next year.

Reforms pose high stakes for Macron

Pension reform is a highly sensitive issue in France and the plans have already generated considerable backlash from a multitude of trade unions. According to an opinion poll published on 3 October, 43 per cent of respondents said they opposed the reforms. On 13 September, workers at Paris’ public transport operator RATP staged a strike that paralysed transport in the French capital. Workers at rail operator SNCF are set to begin an indefinite strike beginning on 5 December. RATP and SNCF employees are currently benefiting from a generous pension scheme, which allows them to retire earlier than most workers.

Previous French leaders have been reluctant to pursue comprehensive changes to the pension system mainly due to the high political costs. The late former President Jacques Chirac was forced to backtrack on reforms in 1995 amid widespread social unrest, prompting him to call early elections in 1997. Another one of Macron’s predecessors, Nicholas Sarkozy, endured the largest-ever industrial action in 2007 over pension reforms, including plans to raise the retirement age from 60 to 62, where it currently stands. The situation in 2007 is drawing striking parallels in 2019. For Macron, at least in the short-term, he will likely face similar, if not greater, public and political blowback than his recent predecessors. Any economic benefits from overhauling the system will only materialise after 2025. But successfully passing through meaningful pension changes will be a big political success, particularly in the private sector, and bolster his credentials as a reform-minded president.

Macron’s rivals will seek to capitalise on workers’ grievances over the reforms. Marine Le Pen, the leader of the far-right National Rally party, has described the plans as the ‘hold up of the century’. The hardline trade unions FO and CGT have called on members to stage a series of strikes over the proposals, but in an encouraging sign for the government, the more moderate CFDT union has indicated that it was generally favourable to the plans. Seeking to assuage workers’ concerns, Macron has promised that the official retirement age would remain at 62.

Gilets Jaunes 2.0?

A series of anti-government protests organised by the gilets jaunes movement erupted across France in November last year over government plans to introduce a tax on diesel fuel. These quickly morphed into a broader movement against the cost of living.

A repeat of the widespread violence and large-scale protests is unlikely however; after holding a series of town hall meetings with local officials to temper their concerns and anxieties, and raising the minimum wage, Macron successfully appeased moderate elements within the gilets jaunes. Attendance has been gradually decreasing in recent protests although forthcoming demonstrations will likely attract large turnouts ahead of and on 17 November, which will mark one year since they first began.

Despite this, widespread opposition over the pension plans could act as a catalyst for different trade unions and gilets jaunes members to coalesce into a more formidable political movement. A protracted a period of social unrest could also harm recent efforts – which include offering over EUR10 billion in new tax cuts for taxpayers in the 2020 budget – by the government to boost foreign investment. For the government to broaden popular support for its plans it will need to maintain constant engagement with elected officials at the local level as well as trade union representatives.

Outlook

In the medium-term, widespread, prolonged social unrest over the plans could weaken Macron and undermine his government’s efforts to improve France’s attractiveness towards foreign investors. While a repeat of the violence similar to that during the gilets jaunes protests is unlikely, indefinite strike action, particularly from public transport workers, will increase pressure on the government to backtrack on the reforms. Indications of growing opposition to the plans will likely be reflected in the French president’s personal opinion polls and attendance levels in pension-related protests.


For Macron, the reforms could mark a ‘make or break’ moment for his presidency. They illustrate the fragile ground the President must walk on to ensure their eventual success. Diluting the proposals could mean little practical change and embolden his political opponents, while offering little compromise on the plans will reinforce the narrative, which is crystallised in the minds of many within the gilets jaunes movement, of a president who does not listen to ordinary citizens. A mishandling of the pension reforms could also prompt electoral blowback in the 2020 municipal elections and jeopardise Macron’s chances for re-election in 2022.


GERMANY: Increased border checks signals continuing concerns over migrant crossings  

On 29 September, German Interior Minister Horst Seehofer said that police will increase the number of security checks at borders to discourage ‘secondary migration’, referring to non-EU nationals migrating between EU member states. A week earlier, Seehofer had announced plans to extend control measures along the border with Austria.

While border checks are not common in countries that are part of the Schengen Zone, where passport controls have been abolished, these were introduced in Germany in 2015 in the wake of the migrant crisis. Germany and Austria intensified controls in 2018. The plans, which will include increasing the number of random inspections at crossing stations, will likely lead to delays to travel and the supply chain.  

Seehofer’s announcement came as the Greek government set out a series of measures, including additional naval patrols in the Aegean Sea, to tackle an increase in irregular migration. The EU is also seeking to improve co-ordination among countries in the continent.  On 7 October the bloc’s border management agency Frontex signed an agreement with Montenegro, offering operational assistance to help the country manage its border with the EU. 

Current controls will likely remain in place as long as irregular migration into the EU (and Germany) continues to grow and the issue remains high on the political agenda.


EU & US: Washington to impose tariffs following WTO ruling, escalating risk of a wider trade war 

Washington is set to impose tariffs on USD7.5 billion worth of goods from 18 October after the WTO ruled in favour of the US in a dispute settlement case. The case related to claims that European aerospace company Airbus received unfair subsidies from EU governments. The US said that 10 per cent tariffs would apply on aircraft and 25 per cent on other products, including agricultural goods. The list of goods that will be subject to the duties are products mostly from France, Germany, Spain, and the UK.

The imposition of tariffs will worsen already strained trading relations between the EU and US. Goods included in the list are cheddar cheese, scotch whisky, French wine, and olives from France, Germany, and Spain. Several products on the list are key exports from the EU to the US and the duties will harm some sectors in the bloc.

As A2 Global first reported  in April, the EU’s response will be measured and avoid escalating trade relations even further. A WTO ruling over EU claims that US-based aerospace company Boeing has unfairly benefited from government subsidies is expected next year. This could mean retaliatory tariffs from the EU on US imports unless an agreement is reached. Ultimately, the US tariffs will make goods made in the EU more expensive for importers and consumers. Retail businesses should factor the new costs into their purchasing strategies. EU-based companies that will be affected by the new duties should identify alternative export markets and anticipate heightened competition in the US market as cheaper alternatives will likely become more competitive. 


Open-Source Review of significant risk developments from August to September

CORRUPTION RISK 

MOLDOVA 

7 October 2019 

Prosecutors seize assets of Air Moldova

ARBI, a government agency responsible for recovering assets, and anti-corruption body CNA seized EUR35 million worth of assets, including two aircraft and several vehicles, from flag carrier Air Moldova. The assets were seized as part of money laundering probe into a series of suspicious transactions that occurred during the company’s privatisation.

A2 Global comments: The asset seizure from the flag carrier provides a clear indication over the severity of the allegations. The seizure comes as Prime Minister Maia Sandu’s government is seeking to crackdown on high levels of corruption by launching probes into questionable business deals

Source: Emerging Europe  

POLITICAL RISK

SPAIN 

5 October 2019

Spain's Ciudadanos moots post-vote support for Socialists

On 5 October, the pro-business Ciudadanos party said it would consider supporting the centre-left PSOE party after elections on 10 November in a bid to break an ongoing political stalemate. While PSOE emerged as the largest party after snap elections in April, talks with the far-left Podemos to set up a coalition government were inconclusive. 

Source: AFP

UNITED KINGDOM

26 September 2019

Jaguar Land Rover to shut UK plants for week to ease Brexit pain

The Chief Executive of UK-based carmaker Jaguar Land Rover (JLR) said on 26 November that the company would shut production at factories across the country in the first week of November due to Brexit. Affected factories include JLR’s plants at Castle Bromwich, Halewood, and Solihull.

Source: Financial Times 

A2 Global comments: The decision by the UK’s largest carmaker illustrates concerns shared among many carmakers over the adverse implications a no-deal Brexit scenario will have on operations. Car manufacturers are reliant on imports of components for production and a no-deal prospect will likely disrupt the cross-border movement of goods. Similar moves will likely be taken by other carmaker to minimise their exposure in the immediate aftermath of Brexit

PORTUGAL

7 October 2019                      

Socialists victorious in Portuguese election

Portugal’s centre-left PS party won most votes but fell short of a majority after a general election on 7 October. the leaders of both the Left Bloc and PCP leftist parties said they were willing to continue working with Prime Minister Antonio Costa and the PS party.     

Source: Politico Europe

A2 Global comments: Costa’s election victory will likely signify policy continuity for foreign investors. While the PS party failed to secure a majority it has emerged with a strong mandate, which will likely mean more control over policy. The economy will likely continue to experience growth but will remain vulnerable to a global economic slowdown.  

NATURAL HAZARD RISK

CZECH REPUBLIC 

7 OCTOBER 2019

Czech forest owners face $1.7 billion loss this year from bark beetle crisis

Forest owners in the Czech Republic face USD1.7 billion in damages this year due to a spread of bark beet, which are damaging conifer trees. Warmer and drier climates have helped insect infestations to spread.  

Source: Reuters 

A2 Global comments: The affected trees are a key source of income for the timber industry and widely used in the construction sector. Losses to the industry will likely continue to grow due to increased logging costs and decreasing timber prices.   

HEALTH RISK 

RUSSIA

1 October 2019

Russian alcohol consumption down 43%, WHO report says

According to the WHO, alcohol consumption has dropped 43 per cent in Russia from 2003 to 2016 due to growing public awareness over associated health risks and restrictions on alcohol sales. The decrease has contributed to improved life expectancy levels. 

Source: BBC 

TRAVEL RISK 

UKRAINE 

6 October 2019

Thousands In Kyiv Protest President's Plan For Local Elections In Eastern Ukraine   

Thousands of people protested in Maidan Nezalezhnosti square, central Kiev, against a deal reached between President Volodymyr Zelensky and Moscow to hold elections in Ukraine’s eastern regions currently controlled by pro-Russia separatists. The plans are part of an effort to help restore peace in the war-torn region.

A2 Global comments: Opposition over the plans will continue to grow, manifesting itself through well-attended protests in central Kiev. Zelensky’s opponents will seek to reinforce the view that the Ukrainian government is capitulating to Russian demands. The deal will likely lead to a de-escalation of hostilities in eastern Ukraine, where there has been sporadic fighting since 2014.   

Source:  Radio Free Europe/Radio Liberty


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