France is Divided, It Will Take a Long Time to Fix
After 10 yrs of slow growth, rising unemployment and dwindling competitiveness, France elected a President Sunday who says he has a plan to pull the country out of its economic malaise.
Emmanuel Macron, 39 anni, a former investment banker who quit the government of Francois Hollande twice out of frustration with the slow pace of reforms, has promised to overhaul the labor market, simplify the tax and pension systems, while paring back regulations he says hamper innovation.
As he gets set to enter the Elysee Palace faces daunting obstacles.
He will be trying to push through his reform agenda at a time when France is more divided than ever over how to respond to the disruptive forces of globalization.
The election campaign showed that nearly 50% the country would prefer a dirigiste approach to the economy in which the role of the French state is expanded rather than shrunk, as Mr. Macron proposes.
In order to have a chance to implement his plans he will have to secure parliamentary backing. That will depend on how his unroven new party, En Marche! does in legislative elections next month.
Even if he does get the majority he needs, it is likely that many of his reforms could take months, or even years, to produce results.
Delays expose Mr. Macron and his government to the same political backlash that ultimately pushed Gerhard Schroeder, the Chancellor responsible for Germany’s “Agenda 2010” reform drive, out of office a 12 years ago.
“Macron is promising an incremental approach whose success will depend on negotiations with the unions,” said Gilles Moec, Chief European economist at Bank of America Merrill Lynch. “I understand the strategy, but it is not one that will deliver immediate results. It will take time to bed down.”
Mr. Macron’s economic program, put together by Jean-Pisani Ferry, the former head of Brussels-based think tank Bruegel, eschews the “shock-and-awe” approach of his defeated center-right rival Francois Fillon, which included radical public sector job cuts and an extension of the statutory working week.
Instead he is charting a more nuanced course that his advisers say is better suited to addressing the root causes of France’s economic troubles. Many independent economists agree.
Mr. Macron will not scrap the controversial 35-hour workweek. Instead he plans to get around it by allowing firms to negotiate in-house deals with their employees on working hours and pay. He has signaled that he could fast-track his labor reforms through parliament via executive order.
Macron’s approach to reducing the size of the French state is also measured. He wants to save EUR 60-B over 5 year. A cut in corporate tax rates to 25% from 33% would be phased in gradually.
That program leaves him vulnerable to criticism from conservatives who believe the French economy needs a far bolder reform jolt after what many view as a lost decade.
The stakes for President Macron are high. If he fails with an agenda that urges the French to embrace globalization and the European Union, he could struggle to see off the challenge from Le Pen’s National Front 5 years from now.
A survey by the Bertelsmann Foundation last week showed how divided the French electorate is.
Some 20% of French voters identify with the extreme right or left, compared to 7% in the European Union as a whole. Just 36% see themselves as “centrist”, Vs 62% in the EU.
Have a terrific week.