Future of ‘Macronomics’ Tested by Violence on French Streets
Future of ‘Macronomics’ Tested by Violence on French Streets
(Bloomberg) -- Emmanuel Macron’s attempt to revive the French economy from a decades-long slumber is fraying at the edges after less than two years of trying.
“Macronomics” promised to loosen labor rules and encourage risk taking and investment, rather than stifling activity with extra restrictions and tax on capital. Insiders would lose their privileges; there would be a renaissance of social and economic mobility.
The problem is the people haven’t yet seen the benefit and they’ve run out of patience. On Monday, after more violent protests, the 40-year-old president promised further u-turns in his grand plan, including some that will widen the budget deficit even more.
The Yellow Vests protests have plunged Macronomics into crisis. If his efforts to restore calm mean not pursuing the remaining unpopular reforms of unemployment benefits, pensions and public spending, or unpicking what’s already been done, he risks undermining his whole program before it gets a chance to bear fruit.
After dropping fuel tax increases last week, Macron made another attempt to find a balance Monday with promises to raise the minimum wage, cancel a tax increase that’s hit pensioners, and abolish taxes on overtime.
“We want a France where you can live from your work with dignity,” Macron said in an address to the nation. “On this point we went too slowly.”
Good Start
Macron’s presidency began with solid economic growth, and businesses continued to increase investment even as his arrival at the Elysee Palace coincided with the end of an incentive introduced by his predecessor.
One of his first actions was a budget loaded with breaks for business including the introduction of a flat rate levy on capital and cuts to corporate and wealth taxes. Since then, investment has continued to ramp up.
Alongside tax reforms, Macron quickly embarked on the signature overhaul of his first year: a top-to-bottom renovation of labor laws. They aimed to reduce the financial penalties and uncertainties for companies making layoffs and give them more flexibility to negotiate conditions with workers.
He also wanted to break down barriers between the haves and have-nots by encouraging businesses to hire on the country’s prized permanent work contract, which individuals typically need to buy or even rent property.
The result is a nascent bright spot as the number of permanent contracts has risen briskly. The direct link, however, is unclear, and even the administration says it will be several years before people feel the results. A lot may depend on whether there is a cultural shift towards more conciliatory, pragmatic workplace negotiations.
For all the benefits to business, meaningful progress in other areas is taking time. There’s only been a small decline in registered jobseekers since he took office, and the number of part -time workers who are actively looking for full-time employment has risen almost without interruption.
Additionally, Macron’s plans for training and apprenticeship to better tailor skills to business needs have barely started and won’t help companies that say recruitment difficulties are already the highest in a decade.
But behind many workers’ frustration is a theme seen almost everywhere since the financial crisis: average pay growth hasn’t improved much, and a jump in energy prices means real wages are falling again.
Already viewed as an out-of-touch Parisian elite, Macron’s efforts to fund more renewable energy touched a nerve in rural France. His fuel-tax hike hit people who rely more on cars for transport than city-dwellers.
That policy was the initial spark for the Yellow Vests, which has since expanded into a disparate group demanding both lower taxes and better public services. But France already has one of the highest levels of public spending in the world and debt is near 100 percent of output.
Macron’s pledge to accelerate tax cuts to deliver a 100-euro-a-month increase in the minimum wage will test his room for maneuver as France’s is already one of the highest in the OECD. A further increase could appease protesters, but it raises questions over his aim of bringing down the budget deficit.
“I don’t want to take any risks of increasing unemployment in France,” Finance Minister Bruno Le Maire said just hours before Macron announced his policy changes.
To contact the reporters on this story: William Horobin in Paris at whorobin@bloomberg.net;Zoe Schneeweiss in London at zschneeweiss@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, James Regan
©2018 Bloomberg L.P.