Macron Must Revitalise French Economy

The majority of French voters rejected Marine Le Pen, the right-wing presidential candidate from the populist party Front National. Emmanuel Macron, the former economy minister under President François Hollande, carried the election with 66.1 per cent of the votes.

Macron's victory was cause for relief in Germany, in part because he has advocated strongly pro-European positions, in contrast to the isolationist tendencies of some of the other presidential candidates. However, Macron's plans for Europe have the potential to trigger conflict with Germany. Macron has criticised Germany's trade surpluses, and some of his policy ideas are sure to encounter resistance, including his proposals for establishing a finance minister for the eurozone, or for harmonising economic, financial, and social policy. According to a survey conducted last year by ZEW, members of parliament in both France and Germany can imagine greater cooperation in the areas of defence and immigration policy. However, the opinions of German and French parliamentarians diverge considerably when it comes to common taxation and labour market policies – including, for example, whether wage regulations should be drafted in Brussels.

The extent to which Macron manages to revitalise the French economy will be decisive for future developments in Europe. France's problems are readily apparent: French GDP growth has trended below the European average in recent years. The unemployment rate is nearly 10 per cent, and youth unemployment is far too high at nearly 25 per cent. The European Commission has criticised the poor integration of young people in the labour market and weaknesses in the French apprenticeship system. Furthermore, public sector spending as a share of GDP is quite high in France at 56 per cent. By comparison, the public sector accounts for 44 per cent of spending in Germany. Unfortunately, French budget woes leave little room for manoeuvre. Public debt stands at 96 per cent of GDP, and France has been running budget deficits of just over 3 per cent.

On the bright side, the reforms initiated by Hollande are gradually beginning to work, as spotlighted by the European Commission in their country report for France. Unemployment has been dropping slowly, and French growth is expected to hit 1.4 per cent in 2017 and 1.7 per cent in 2018, even in the absence of policy changes. Macron has only made tentative statements regarding his specific policy plans. A public-sector investment programme – in part to bolster the apprenticeship system – is to be financed by reducing expenditures elsewhere. Furthermore, more flexible working hours should help to create jobs, even if the 35 hour working week is not being called into question. The EU Commission has also recommended that investment activity be stimulated by simplifying the tax system and further liberalising the service sectors.

While Macron did not emerge from any of the established political parties, he is certainly no outsider. His experience as economy minister will help him to implement his plans to flexibilise the economy. And clearly, a revitalised French economy would also benefit Germany and Europe.