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Can Macron solve France's economic riddle?

Can Macron solve France's economic riddle?

His austerity measures seem to be winning votes, but is that enough for the French President to get his reforms through?

Emmanuel Macron defied political orthodoxy by romping to a comfortable victory in the French presidential election last month, but that didn't mean his doubters disappeared.

Critics highlighted the 35 per cent of the vote won by far-right campaigner Marine Le Pen and warned the country's new President that if he failed to deliver on his promises to solve the economy's persistent problems, the National Front leader could come back with an "even stiffer" challenge in 2022.

In addition, they said, France's general elections this month were likely to deliver a parliament that would make Macron's "five-year term the most difficult of any head of state since Charles de Gaulle established the Fifth Republic in 1958". At the time, Macron did not even have a slate of candidates to stand.

However, Macron defied the political odds once again, with a cobbled-together group of defectors and newcomers securing a landslide for his new party La Republique en Marche in the first round of voting.

With 32.3 per cent of the vote, En Marche! and its parliamentary ally the Democratic Movement party are projected to secure as many as 445 out of 577 seats in the French parliament, says the BBC.

It seems Macron will have a strong mandate - and the necessary parliamentary majority - to push through his radical reform agenda.

Scaling back

In stark contrast to the Tories' electoral failure, Macron is securing convincing political victories by promising to administer a dose of the austerity medicine that UK voters seem to have rejected.

His measures include cutting €60bn (£51bn) from public spending, shedding as many as 120,000 public servants and reforming generous public sector pension schemes to bring them in line with private sector alternatives.

It is not all cuts, however, as a package of liberalising labour market reforms would also extend unemployment benefits to entrepreneurs and those who leave their jobs, says the Washington Post.

The context in France is very different to that in the UK, as well. Total government spending across the Channel is equivalent to around 57 per cent of GDP, the second highest in the Organisation for Economic Co-operation and Development (OECD) group of advanced economies. UK government spending is around 43 per cent.

France's budget deficit also rose above that of the UK last year, at 3.4 per cent of GDP, while its government debt, at 120 per cent of GDP, is proportionally higher.

Employment riddle

Among the most "defining" proposed policies of the Macron presidency will be tackling rigid employment laws, Bloomberg says.

France's unemployment rate is more than twice that of the UK. It stands at 9.6 per cent, "which - believe it or not - is a five-year low", says the Post.

Many French presidents have tried to make the laws more flexible: Jacques Chirac was forced to abandon his own plans in 2006, while Nicolas Sarkozy is widely considered a flop for his failure to secure substantive changes and Francois Hollande's plans, drafted by Macron, met with violent protest last year.

At issue in particular are rules making it difficult to fire workers and which are subject to court challenge in front of employee-friendly judges.

For example, says the Washington Post, while "economic reasons" can be cited for lay-offs, judges have been known to decide this rationale does not stack up if a company is losing money in France but is in profit elsewhere.

If it is prohibitively expensive to fire, then companies do not hire - and France has a "two-tier" employment market in which many younger and immigrant workers are on contracts of as short as a month.

Elsewhere, 98 per cent of workers are covered by industry-wide union-negotiated contracts that set such matters as pay rates, despite only eight per cent of workers belonging to a union.

Will Macron succeed?

Assuming he gets the parliamentary majority being forecast, Macron will be in a better position than most of his predecessors to push through his programme.

His mandate would be fairly undeniable as well: labour market reforms have been a central thrust of his presidential election campaign so voters have in theory passed a positive verdict.

But he will still face hurdles, not least from the unions. Philippe Martinez, head of the CGT, France’s second largest union, told Bloomberg they categorically oppose his plans to allow companies to negotiate pay deals.

Meanwhile, "the unions that organized last year's tumultuous strikes and protests have threatened a repeat performance", the Washington Post says.

Macron will hope the fact he is offering a more balanced programme, including additional unemployment benefit provision to "encourage risk-taking", will mollify the opposition. In any case, he should have the parliamentary power to get his vision enacted.

The Daily Telegraph also suggests the drop in unemployment levels might encourage a more sanguine attitude to changes.

Is he right?

Macron's plans are popular, not least among fellow EU member states, who believe France's labour market presents high barriers to entry for those moving around the single market.

But Jeff Spross, writing for The Week's US sister magazine, says Macron has "misdiagnosed" the problems in the French economy.

"If France actually had genuine full employment for everyone - young and old, native and immigrant alike - and its economic growth was still stuck in neutral, then you'd have a case that rigid labor laws were to blame," he writes.

"France's growth in GDP per person increased at a steady clip until 2008, and only flatlined after the Great Recession. This suggests France's problem is a straightforward shortfall in aggregate demand."

Spross argues that the productivity problem at the heart of France's employment malaise is a function of reduced demand in the economy. Only by running a higher deficit to pump money into the economy can it be fixed.

While this is not a popular view, if it is right, it suggests that even if Macron succeeds in passing his reforms, he will not solve his country's social divide - and could even "intensify the country's social upheaval".

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