President Emmanuel Macron combines a belief in liberal economics with a social conscience. The tension between the two is at the heart of the dramatic fall in his popularity this summer, and could spell difficulties for him as he proceeds with reform of the labour code in September.
Macron claims to be “neither left nor right”. A mixed bag of investment, stimulus and swingeing cuts makes it difficult to grasp his overall economic vision, though his policies are perceived to be more right than left-wing.
Macron’s campaign programme proclaimed his desire to “liberate work and the spirit of enterprise”. The left-leaning economic think tank OFCE reports that the wealthiest 10 per cent of the population will receive 46 per cent of benefits from changes in fiscal policy. An exodus of French millionaires, estimated at 12,000 last year, seems to indicate a correction in that direction was needed, but being labelled “the president of the rich” could be politically devastating for Macron.
With an absolute majority in the National Assembly, Macron will be able to carry out his policies. His desire to prioritise defence and higher education to the detriment of housing and employment will, nonetheless, be vociferously opposed by the left, particularly Jean-Luc Mélenchon’s “Unbowed” movement, when the 2018 budget is debated this autumn.
Macron is determined to comply with the EU’s 3 per cent limit on deficit spending this year. It will be the first time France has met the target in a decade, and it has a political cost. Macron angered conservative voters by sacking the chief-of-staff, Gen Pierre de Villiers, in a dispute over €850 million in short-term cuts in defence spending. He also angered local governments by axeing €300 million of their funds.
Since Macron defeated the extreme right-wing leader Marine Le Pen, he is seen as the slayer of the populist dragon in Europe. Traumatised by Brexit and Donald Trump’s election, EU leaders are more receptive to Macron’s European agenda than they might have been otherwise. Though they like the sense of energy and renewal he brings to Europe, many are leery of his proposals.
Macron wants to turn the euro zone into a more integrated, supra-national body.
“To be able to invest much more than today, we want a budget for the euro zone, voted by a parliament of the euro zone and overseen by a minister of the economy and finance of the euro zone,” his programme declared.
Chancellor Angela Merkel did not want to leave the pro-European mantle to her challenger in next month’s election, the former president of the EU parliament Martin Schulz. In June she finally agreed to consider Macron’s proposals for government of the euro zone.
Harmonisation of social policies is an integral part of Macron’s plan. He has promised to lower France’s corporate tax rate from 33.3 to 25 per cent, the EU average. He wants “convergence” of corporate tax rates within the EU. Irish officials say confidently that because the move would require a unanimous vote, Ireland’s 12.5 per cent rate is not threatened.
Macron’s determination to force the internet giants known in France as “GAFA” [Google, Apple, Facebook and Amazon] to pay more tax could also be a source of tension with Ireland. Macron’s programme promised to fight “fiscal arrangements between states and multinational corporations…like the arrangement between Apple and Ireland…”
During the campaign Macron was portrayed as the candidate of free trade and “happy globalisation”. Since his election he has emphasised fair trade over free trade, and some Europeans dislike the protectionist streak in him.
Macron has introduced the idea of an EU droit de regard on foreign takeovers in strategic sectors. In particular, Paris fears state-backed Chinese companies taking over European high technology companies. The Netherlands, Scandinavians and Baltic states have objected.
This summer the Italian shipbuilder Fincantieri was about to buy a two-thirds stake in France’s largest shipbuilder STX France. Macron nationalised the company instead. Rome called the decision “incomprehensible”, and accused Paris of economic nationalism. The Italians question why it was all right for the previous owner, a Korean shipbuilder, but not Italy to own a majority stake.
One of Macron’s first initiatives in Europe was to propose a revision of a 1996 directive on detached workers, under which 286,000 Europeans worked in France last year, particularly in construction and haulage. The largest number were Poles (46,816), followed by Portuguese (44,456) and Spaniards (35,231).
The 1996 directive allows workers to temporarily remain under the social protection regime of their home country, which Paris sees as “social dumping”. Macron wants to limit the stay of detached workers to 12 months every two years, and prevent employers from deducting food, lodging and transport from their pay.
The French proposal is supported by Germany and other countries who have been hurt by fraud in the detached worker system. It is strongly opposed by east Europeans who benefit most from it.
Structural reforms undertaken by Macron, in particular the overhaul of the 3,334-page labour code, are intended to strengthen France’s status as a credible European partner for Germany.
High social charges and restrictions on hiring and firing contribute to unemployment and sinking competitiveness. Reforming the labour market is a top priority for Macron.
Macron, prime minister Edouard Philippe and labour minister Muriel Pénicaud began summer-long consultations with trade union leaders and social partners in May. At the beginning of August, the National Assembly voted to allow Macron to pass labour reforms by decree.
At least three decrees will be presented to negotiators from August 21st, and in cabinet one month later. Macron wants to see the reforms enacted by the end of September.
The communist CGT accuses Macron of wanting to “break” the labour code, and has scheduled a day of protest on September 12th. Mélenchon’s “Unbowed” will hold its protest on September 23rd. The larger the demonstrations, the more difficult it will be for Macron to persevere.
The fact that joblessness is receding at the fastest rate in a decade could weaken Macron’s argument about the urgency of labour reform. At 9.6 per cent, French joblessness is still nearly three times the level in Germany, but if present trends continue Macron stands a good chance of lowering unemployment to 7 per cent by 2022.
France has enjoyed a modest economic revival since Macron’s election. At 1.6 per cent, economic growth is the highest in six years.
Rising imports and falling exports are the dark spot on France’s otherwise improving prospects. Figures published on August 8th showed a €34.3 billion trade deficit for the first semester, the highest in five years. By contrast, trade surpluses in Germany are breaking records. French foreign minister Jean-Yves Le Drian in July called foreign trade figures “extraordinarily worrying”.
De-industrialisation is the root problem. In two decades, hundreds and hundreds of French factories have closed, shrinking the textile, clothing, leather and shoe industries by 87 per cent. The furniture and paper industries are also ailing. Annual production of cars in France has fallen from 3 million to 2.1 million in 10 years.
MACRON’S FIVE-YEAR ECONOMIC ‘REVOLUTION’
A budget for the euro zone, voted by a parliament of the euro zone and overseen by a euro zone finance minister.
“Convergence” of corporate tax rates within the EU to end unfair competition.
A “Buy European Act” to reserve 50 per cent of public markets for EU-based companies.
Surveillance of foreign investment in strategic sectors of the European economy, particularly hi-tech.
Creation of a venture capital fund to finance European start-ups.
The labour reform will favour inhouse agreements over sector-wide negotiations with trade unions, do away with multiple representative bodies for employees within a company and cap damages for unfair dismissal awarded by labour courts.
Spending cuts – €60 billion
€25 billion in government expenditure; €15 billion on healthcare; €10 billion on unemployment benefits and €10 billion for local governments. Elimination of 120,000 civil servants’ jobs.
Investment – €50 billion
€15 billion for job training; €15 billion for renewable energies; €5 billion each for health, the modernisation of agriculture, digitalisation of the public sector and transportation. A further €15 billion is planned for new measures, like raising old age pensions and disability allowances.
Reduce joblessness from 9.6 per cent to 7 per cent by 2022. Those who resign and the self-employed will be eligible for unemployment benefits.
Corporate tax to fall from 33.3 per cent to 25 per cent, the European average.
80 per cent of the population will be exempted from paying housing tax, at a cost to the state of euros 10 billion.
Payroll charges for healthcare and unemployment insurance will be reduced. The CSG tax that finances social welfare will be increased, but by a lesser amount.