11222017

Allez la France

Reforms are urgently required – and resistance will be strong… Economic success will largely determine whether the new French president will be standing for election again in five years’ time. Macron’s economic and political latitude is far greater than that enjoyed by his predecessors but he will face opposition when it comes to financial und pension reforms and labor law amendments…

Mario Sánchez Prada / Flickr 4116623894_2cbec795dd_o / Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0) https://creativecommons.org/licenses/by-sa/2.0/

Oh là là: French world market leaders make for a quarter of global sales of luxury goods

Economic success will largely determine whether the French president will be standing for election again in five years’ time. Emmanuel Macron has ushered in an era of political renewal in France. He represents a young generation that feels as little bound to old concepts such as “planification” (a state-planned economy) as to neoliberal and post-capitalist strategies of an unbridled market economy. Macron’s overwhelming success in the presidential election and in the legislative elections held in mid-June has granted him an economic and political latitude that is far greater than that enjoyed by his predecessors Nicolas Sarkozy and François Hollande. Macron’s election manifesto, called “Contrat avec la Nation,” is a collection of proposals for change and an appeal to the capabilities of the French nation. But the young president does not have unlimited scope to shape his economic and political agenda. For one, the weakness of the parliamentary opposition could give rise to an extra-parliamentary opposition that will be carried out on the streets of Paris and Lyon, and in the large departments, which are mostly rural in character. For another, the economic policies of EU governments remain subject to the EU regulatory framework. The Maastricht rules on public debt and the euro system pose a significant obstacle to a president who is bent on renewal, both in terms of policy and of personnel.

Gerard van der Schaaf / Flickr 8661171028_d52e591301_o / Attribution 2.0 Generic (CC BY 2.0) https://creativecommons.org/licenses/by/2.0/

Sought after but problematic: arms exports

Macron has assumed office at a time when France is facing serious economic difficulties. In recent years, France’s economy has lagged behind that of the rest of Europe. France’s unemployment rate is nearly ten percent. At almost 25 percent, youth unemployment is also far too high. France’s state ratio – meaning the ratio of government expenditures to GDP – is about 56 percent. In Germany, by contrast, the state ratio is 44 percent. These budget woes will further limit Macron’s hand. France’s public debt is at 96 percent of GDP and its budget deficit is slightly over three percent of GDP.
But the reforms initiated under François Hollande are beginning to show an effect. The unemployment rate is slowly declining; France is projected to have a growth rate of 1.4 percent and 1.7 percent for 2017 and 2018 respectively, even under a “no policy change” scenario. But this scenario is highly unlikely. Macron is planning to quickly launch his planned reforms and is counting on the momentum that transformation could bring to a country that has largely been paralyzed for years.

Threefold resistance

Macron can anticipate resistance in three areas: in financial reform, pension reform, and in amendments to labor law. His tax policy envisions a €500 net tax reduction for taxpayers who earn €2,200 a month. This is to be achieved by, among other things, exempting 80 percent of lower-income taxpayers from the “taxe d’habitation” or local property tax. However, this tax is an important source of funding for cities and local communities, so local mayors and municipal leaders can be expected to oppose this plan.
Pension reform will be another mammoth task. For the time being, Macron does not plan to change the retirement age of 62 years. But the various calculation methods for pensions are to be gradually shifted to a universal point system, based on the Swedish model. The proposed reforms to labor law will encounter the greatest resistance. The changes are largely aimed at providing employers with greater flexibility. Sector-wide wage agreements, negotiated with the trade union, may in future be replaced by internal company negotiations on wages and work conditions. The president hopes that his proposed measures will unshackle the French entrepreneurial spirit and economic vigor.
Macron’s core program of reforms is rounded out by a new model of growth. His call for €50 billion of public investment gives priority to environmental protection measures. Private investment is to be spurred by lowering the corporate tax rate.
Implementing his election manifesto would cost up to €100 billion. Macron plans to save €60 billion through cuts to government spending. Every ministry will be asked to present detailed plans for potential cuts, with the aim of reducing the ratio of government spending to GDP to 53 percent. The number of state employees is to be reduced by 500,000 over coming years, and positions that become vacant will not be filled.
If we reduce Macron’s economic policy to the core ideas of shrinking the state, lowering taxes, and easing restrictions on redundancies, they are reminiscent in their neoliberal impact to Germany’s Agenda 2010. But he remains committed to much of the French social welfare state, including the 35-hour week, early retirement age, a high minimum wage, and so forth. His electoral agenda is guided by the conviction that the state has an important role to play in determining the conditions of life in France; while this role is founded on centralized control, the regions and departments are also accorded clearly defined responsibilities.
EU integration offers new opportunities for responsible economic policies, but it also places limits. Many hope that Macron will also help stabilize the EU. And Macron himself has promised to help create a Europe that will allow employment and the economy to thrive. His European economic agenda rests on three proposals: he has called for a Eurozone finance minister and a common budget, and he wants to create a Eurozone parliament with authority to make economic and political decisions. Taken together, these proposals endorse the concept of a “multi-speed” Europe, a concept that Germany is likely to welcome. At the same time, however, Macron’s ideas also do not accord completely with the “doctrine of the balanced budget.” Instead of instinctively rejecting further integration of the Eurozone, Berlin would be well advised to deliberate these proposals with Macron on their own merits. The Eurozone needs its own federal structure with a parliament, governing body, and its own finances in order to be able to act with credibility, speed, and purpose. The prospect of a “transfer union” can only be held in check if the redistributions associated with Macron’s proposals are carried out according to clear rules, and according to the principle of responsibility. The French ideal of “egalité” must also
apply to the Eurozone.■

Photo Credit: Mario Sánchez Prada / Flickr 4116623894_2cbec795dd_o / Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0) https://creativecommons.org/licenses/by-sa/2.0/ ; Gerard van der Schaaf / Flickr 8661171028_d52e591301_o / Attribution 2.0 Generic (CC BY 2.0) https://creativecommons.org/licenses/by/2.0/

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