By Daniel Flynn
PARIS (Reuters) - The Socialist frontrunner in France's presidential election would hand militant trade unions a bigger role in the economy if he wins power next month, gambling on transforming traditionally combative labor relations, aides say.
Francois Hollande, who polls suggest is on course to become the first left-wing president in nearly two decades, believes a more cooperative approach could help restore public finances and improve flagging industrial competitiveness.
"Unions do not play an important enough role in France. The social partners in general don't: both unions and employers," said Michel Sapin, a Socialist ex-finance minister, who oversaw the campaign program for Hollande, his long-time friend.
"If you compare us to Germany, our main weakness is the role played by social partners," Sapin told Reuters in an interview.
Unions fought tooth-and-nail against conservative President Nicolas Sarkozy's landmark reform - a two-year increase in the minimum retirement age to 62, which put a temporary band-aid on France's heavily indebted pay-as-you-go pension system.
While critics accuse Hollande of ignoring the need to prune an over-generous welfare state, he aims to initiate a broader overhaul of the creaking pension system at a social conference he would hold this summer to put its finances on an even keel.
But he needs the unions' backing.
Advisers to Hollande agreed on condition of anonymity to flesh out details of his ideas for wooing organized labor.
They said Hollande wants to give workers the flexibility to choose their own retirement age by introducing a system where they accumulate pension points. Those who retire early would receive a smaller pension.
The bottom line is that the pension system - composed of 38 different schemes with a cumulative deficit of some 32 billion euros in 2010 - must be made solvent for at least the next decade, and that may mean workers paying more, they say.
Under Sarkozy's reform, the pension system will be back in the red in 2017 as the population greys.
The Socialists are dangling the prospect of writing into the constitution an obligation to consult the unions on social and labor laws if they play ball on pension reform, aides say.
Hollande would also press for legislation to hand unions one-third of the seats on the supervisory boards of large French companies, on the German corporatist model of Mitbestimmung.
TRADITION OF CONFLICT
Many in France envy the Germany system of "co-determination", whereby unions are stakeholders in corporate boardrooms, helping firms weather the crisis by negotiating flexible hours and wage costs in return for job security.
France's economic fragility has made the comparison with the resurgent German model more striking.
Stripped of its AAA credit rating by Standard & Poor's in January, France posted a record trade deficit last year and unemployment is at a 12-year high. On the other side of the Rhine, joblessness is at 20-year lows and exports hit a record.
Some question whether French unions would be keen to accept such a deal and how they would wield such responsibility.
"This would be a gamble by the Socialists," said Gilles Moec, European economist at Deutsche Bank. "The problem could be the unions themselves. It's completely against their DNA."
For decades, French unions have adopted a confrontational stance in labor negotiations and avoided political dialogue. The 1906 Charter of Amiens enshrined a culture of "revolutionary unionism" at odds with more collaborative models in northern European nations like Denmark or Germany.
Another reason for fractious labor relations is that dozens of small unions are grouped in five rival federations that vie for influence, often by taking the most radical line.
In Germany, unions are organized by sector and the Deutscher Gewerkschaftsbund (DGB) confederation groups 7 million of the more than 8 million unionized workers. In France, only about 1.8 million workers are union members, mostly in the public sector.
But France may be changing. Sarkozy pushed through legislation making union-negotiated wage deals effective only if backed by a majority of workers - a move expected to spark consolidation as members flock to the largest groups.
"There's going to a simplification of union world in the years ahead. But that will take a time and we need to take decisions quickly," said Sapin. "There is no reason for the social security system to be indebted ... This is urgent."
Hollande has pledged to balance France's public accounts in 2017 and the pension overhaul could be important in showing he is more than just a traditional tax-and-spend Socialist.
"France is becoming a high risk country," said U.S. economist David Hale. "If Hollande wins, he'll have to move fast to clarify what he is going to do. So far he has only talked about raising taxes and spending. He has to demonstrate that he is also willing to control and cut spending."
SOME UNIONS MAY RESIST
French union membership is low by international standards: just 8 percent of workers compared to 20 percent in Germany and 12 percent in the United States. But the share of workers covered by collective bargaining is among the highest in the West as the Labour Ministry extends deals to cover entire sectors, according to the OECD rich nations' think-tank.
Rising wage costs are often blamed for a decline in competitiveness that has tipped the trade balance into a deep deficit. While unit labour costs in Germany crept up by just 2 percent between 1999 and 2010, they rose by more than 20 percent in France, OECD figures show.
In addition, laws make it costly to hire and fire workers and a place a large share of welfare costs on labour. Economists blame this for raising the underlying unemployment rate, which has not fallen below 7 percent since 1982.
Drawing on a proud tradition of protest embodied by the May 1968 general strike, which involved more than one-fifth of the population, the unions staged stoppages to defeat reforms of the welfare and labour systems in 1995 and 2005.
But the failure of the 2010 pension protests suggested their muscle had been eroded by new laws guaranteeing minimum service levels public transport and schools. Though millions took to the streets, France did not come to a stop.
Some unions seem likely to embrace Hollande's plans. The CFDT, the largest confederation with 900,000 members, supports a transition to a points-based pension system and would favor a more German-style system of wage negotiation.
"We recognize we have a competitiveness deficit in France," said Laurent Berger, the top CFDT official in charge of social dialogue said. "We're in favor of a more collaborative and peaceful labour dialogue, similar to Germany."
The combative Communist-led CGT, the second-largest, is more likely to resist. It spearheaded the union revolt against Prime Minister Alain Juppe's reforms in 1995 and against a proposed low-wage youth employment contract in 2005.
"A shift to a points system would not solve the financing problems of the pension system," said CGT's Jean-Christophe Le Duigou. "The only way to return the system to solvency is to create more jobs ... and a slight increase in contributions."
Le Duigou saw little benefit from the constitutional reform suggested by Hollande's aides, noting that a 2004 law already created an obligation to consult unions on social legislation.
There is also a French union tradition: unions are not there to manage companies, they are there to demand rights for their workers," he said.
(Editing by Paul Taylor)