Union strikes are not Macron’s ultimate reform test

French President Emmanuel Macron‘s plan to reform the state-owned rail company, the SNCF, was met with major travel disruptions this week with more than 75 percent of SNCF train conductors on strike and only 12 percent of trains running.

The strength of the demonstrations together with the vivid memory of 1995 — when strikes by rail workers were instrumental in blocking France and forcing Prime Minister Alain Juppe to cave in and abandon his welfare reforms — have generated many alarming comments.

{mosads}In this view, France is in a dead end. The government will show no sign of softening as it would jeopardize Macron’s entire reform agenda. And there is no reason to believe that unions would agree to anything as they only have things to lose.

This is vastly exaggerated and overly pessimistic.

The first thing to realize is that we are only at the start of a negotiating process. Rather than a fully-fledged reform plan, the draft law presented by the government in mid-March provides little more than a framework and a timeline for the overhaul of the rail operator.

The government has since specified some of the measures that it would like to see in the final text, but its exact content is still being negotiated.

It is thus fair game at this point for unions to flex their muscles and for the government to pretend that red lines won’t be crossed. But there are reasons to believe that this will not necessarily last.

First, the need to contain costs and improve the quality of service is widely understood and shared. Previous attempts to overhaul the rail operator were simply seen as means to reduce the state’s commitment to provide public services.

Repeated delays and safety problems over the past few months have, however, revealed that absent any significant action, SNCF will more likely than not struggle against competitors when passengers freight becomes open to other operators in 2019.

Second, Macron’s reform proposals are hardly brutal. The infamous special employment status of rail workers — which confer life employment, automatic career advancement and early retirement — would be maintained for current employees.

Their rights would also become portable from one train operator to another when competition opens in 2019. Only new hires would from now on be employed under standard job contracts.

This is clearly reminiscent of Macron’s campaign philosophy of “libérer et protéger” — “liberate and protect” — even though this reform was not part of his pledges during the presidential campaign.

Third, the government was wise to ditch some of the most explosive ideas suggested by the recent Spinetta report on the future of railway transport. The report ordered by the prime minister had suggested closing many of France’s uncrowded and loss-making small regional lines.

In a country where it is still common to hear complaints about rural areas being abandoned by the state following the closing of small post offices, such a move would have clearly generated additional protests from users.

Fourth, the government will certainly improve its explanations for the different proposed measures over time. It is an understatement to say that it started badly.

A critical mistake was to keep the issue of the SNCF debt, which now amounts to 2 percent of GDP, outside of the explicit scope of negotiation. The idea was surely to provide the government with leverage. But this approach has now backfired.

Without a clear explanation of the link between the legal status of SNCF and the extent to which it can accumulate debt, the proposal to incorporate the state-owned company raised fears of privatization. It also singled out the special “privileges” enjoyed by rail workers as the main source of debt accumulation.

Given the clear acceleration in debt accumulation since 2010 that came against the backdrop of the construction of four new high-speed train lines, this “SNCF bashing” was not only antagonizing, but inaccurate.

If carried through entirely, there is no doubt that the current plan to roll strikes for two days out of every five days for the next three months would be a major political failure for Macron.

It would also turn into an economic catastrophe as disruptions in transportation of this scale over such a prolonged period would certainly choke the ongoing recovery in economic activity.

At this point, there are, however, more reasons to be optimistic than pessimistic about how this will end.

Jérémie Cohen-Setton is a research fellow at the Peterson Institute for International Economics. His research focuses on monetary and fiscal policy, structural reforms, currency unions, financial globalization and economic history.