What Happened

A fourth week of strikes has gripped France as the country's main trade unions continue to resist President Emmanuel Macron's plan to reform the pension system, fomenting unrest that will probably continue into 2020 and shape Macron's political future. For Macron, the stakes are higher than simply halting the disruptions to French public transportation systems and the small-scale fuel shortages that the strikes have caused. For him, the outcome of the dispute will determine how much room he'll have to act when it comes to introducing future reforms in the French economy.

If striking unions manage to block the pension reform plan, the government's authority will be significantly diminished before the next presidential election in mid-2022. A victory over the unions, on the other hand, will embolden Macron to press for even more economic reform, both at home and within the broader European Union. With that much at stake, Macron is therefore in no hurry to give up to end the protests, hoping that a loss of popular support for the disruptive actions, disputes among union groups and tactical concessions to protesters will allow him to win the battle, even if it takes months.

Why It Matters

Macron is taking a three-pronged strategy in trying to push through pension reform. First, the government is betting that public sympathy for the strikes will ebb the longer people's lives are affected by the disruptions. There are signs that the tide may be turning against the strikers already, but it's worth keeping in mind that for most French unions, their membership's interests will always come before the broader public's. Second, the French government also calculates that differences over tactics between the left-wing General Confederation of Workers and the more moderate French Democratic Confederation of Labour will increase in the coming weeks. Traditionally, the General Confederation of Workers tends to be more combative, while the other umbrella group tends to support negotiation with the Elysee. And third, Macron has kept his reform plans vague enough that even if he needs to introduce last-minute changes to seal an agreement, he could credibly claim a victory in the negotiations.

The French government has scheduled the next round of consultations with unions and business associations for Jan. 7. The Elysee has promised to present the detailed pensions reform bill by the end of next month with an eye to formally approving the motion by mid-2020. This suggests that Macron is willing to endure additional weeks of protests.

The Economic Impact

The French government stands a decent chance of passing pensions reform, but the victory will be expensive. Retailers, hoteliers and restaurateurs have complained that the strikes are hurting their operations. In the meantime, roughly 3 percent of French fuel stations face shortages because of strikes at the country's refineries. The situation is not yet critical, because most stations continue to operate normally, and the government could increase imports of petroleum products if domestic supply disruptions worsen. A rise in French imports would cause prices on European fuel markets to increase relative to other markets, attracting other imports, such as from the United States.

Continued disruptions in transportation and fuel availability, however, could eventually further drag down the already-slowing French economy. According to Eurostat, growth in France's gross domestic product will fall from 1.7 percent in 2018 to 1.3 percent in 2019, but in the likely case that protests continue, growth could fall even further. Government measures to help the sectors of the economy affected by the strikes (such as tax waivers) could have the effect of reducing government revenue at a time when Paris is struggling to keep its fiscal deficit aligned with EU rules.

Finally, prolonged strikes and, in particular, the withdrawal of the pension measures, would send the message at home and abroad that Macron cannot reform his country. This would damage the president's push to make France a more attractive destination for foreign investment and also affect his plans to elevate Paris' role in EU affairs at a time when other large economies in the bloc, including Germany and Italy, are too focused on domestic issues to lead the continent. This factor explains Macron's determination to pass the pension reform and swallow the costs of extended protests.