The Effects of the French Election on the Economic Environment
Sunday, May 7th, former investment banker and France’s economy minister Emmanuel Macron of the centrist En Marche! party was elected France’s new president. Muddling through was not an option for the French this year – the choice was between staying with the European Union and the euro while reforming, or leaving the EU and going back to the Franc.
With the victory of Macron the French chose for European integration and reforms. These reforms have to take place on two interrelated levels. The first is the French economy, the second one is the Eurozone. “Without change in the way the Eurozone works, the impact of domestic reforms will be limited. And without reforms, he will lack the credibility to push for change at Eurozone level.” (Münchau, 2017) This implies that Macron has to encourage national reforms as well as reforms in the Eurozone. This article elaborates upon the effects of the election of Macron on the economic environment of France and Europe. Moreover, the effects of Macron’s win on the Euro will be predicted. In this prediction it is assumed that Macron will get a majority in the 577-member National Assembly next June, or puts together a feasible coalition.
Moreover, the effects of Macron's win on the Euro will be predicted. In this prediction it is assumed that Macron will get a majority in the 577-member National Assembly next June, or puts together a feasible coalition
Effects on the French Economy
Because the Eurozone agenda will be formed after the German elections in September, national reforms will be implemented beforehand. (Münchau, 2017) France is, together with Germany, the largest country of the Eurozone. Although the living standard of both countries were equivalent when the Euro got introduced 15 years ago, today France’s standard of living is almost 20% lower than Germany’s. Moreover, Germany and France had an unemployment rate around 8%. Nowadays, German unemployment has dropped to below 4%, while France’s has risen to close to 10%. (Elliott, 2017) For young adults, under the age of 25, even twice as much. (Rubin, 2017) Despite last year’s increase in employment, 85% of the employment rate consisted of temporary jobs, with a great majority being contracts of less than a month. (Elliott, 2017)
Reducing the unemployment rate to 7% is one of the main goals in the agenda of France’s new president. Macron intends to stimulate growth of the labour market by thinning-out France’s Code du Travail, the 3,000 page code that contains labour legislations. (Chan & Wallace, 2017) Macron further, aims at reducing unemployment by decreasing hiring costs for employees significantly through abandoning the law, which states that employers have to pay social taxes for new employees. This would increase attractiveness for businesses to create new jobs. Macron also focuses on the high youth unemployment rate in the banlieus, the impoverished suburbs of France, by trying to create more flexible working hours and substituting businesses that hire employees from these suburbs. (Rubin, 2017) Moreover, Macron proposes investing 15 million euros to retrain laid-off employees and youth unemployment. He further, wants to change industrywide ‘labour negotiations to company-level agreements, such as working hours.’ (Alderman, 2017) However, not all businesses expect to profit from these decisions. “Too many European Union rules also make it hard for certain employees. For example, when they repair the hood of a small plane, it adds an hour just to check off all of the safety requirements.” (Alderman, 2017)
Another important issue for Macron is to boost France’s economic growth. The real GDP in France did not grow significantly between 2007 and 2016– this can be seen as “a lost decade”. Germany’s real GDP for example, grew in the same time with about 7%. (Wolf, 2017) Accordingly, Macron aims at attracting more foreign businesses and increasing domestic business activity by decreasing corporate taxes from 33% to 25%. (Chan & Wallace, 2017) Macron expects reinforced confidence of consumers and encouraged investment. (Wolf, 2017)
The French Presidential Election and the Influence on Europe
Today, the European economy is growing modestly, however, theshare in global GDP declined relatively. Unemployment is at one of the highest levels ever. Moreover, the recent migrant crisis evoked political instability and further, tensions with Russia are still not recovered. Furthermore, the Brexit embeds uncertainty caused by outstanding arrangements with, and inside the EU. The president of the European Commission, Jean-Claude Juncker, presented 5 scenarios for the upcoming years. These scenarios influence the policy of the new French President and the new French policy, as well as the direction of Europe. (Upadhyay, 2017)
The first scenario includes ‘carrying on’ the strengthening of the single market and the euro area. Furthermore, there should be cooperation on topics like national and international security. Secondly, ‘nothing but the single market’ embeds re-centring the single market, by empowering free trade. The third scenario incorporates ‘those who want more, (should) do more’. Hereby, member tates can decide for themselves whether toenhance cooperation in different fields. The fourth option is ‘doing less, more efficiently’. In areas, such as, employment and social policy will be less intervention and influence of the government. The final scenario emphasises ‘doing much more together’. There will be harmonization of standards and further, the economic, financial and fiscal union will be enforced and cooperation will be supported. (Upadhyay, 2017)
‘those who want more, (should) do more’
France is very important in deciding upon which road the EU should follow. This is mainly due to France’s large economic value and political influence on the EU. (McAuley, Birnbaum, 2017) Europe is our common future and France is a key pillar of the EU, hence, its’ political integration is crucial for OUR future.
President Macron and the EU
The political opinion of Macron is favourable to the EU since he focuses on a global approach. Macron has indicated that he is willing to work with Germany to reform and further strengthen Europe (Upadhyay, 2017) This is supported by his statement that “[T]he French-German axis is the core of the reactor, both in the eurozone and the EU. It is a prerequisite for any progress.” He added, “[O]ur duty is to rebuild the European dream.” Multi-speed Europe is a solution to the problems Europe currently faces. He trusts in the euro, nevertheless, he clearly acknowledges the need for reforms of major European institutions. Moreover, he argues that this change should mainly be encouraged by France and Germany, whose cooperation will eventually lead to an increased living standard. Furthermore, Macron supports an open labour market and improvement in training programmes to enhance employment opportunities. Additionally, the development of the school system is a priority for Macron (Upadhyay, 2017) He further, suggests that stronger European nations should make financial transfers to weaker countries for financial equalisation. He proposed to establish one voice, a permanent head of the European Union.
Effects of Macron’s Plans on the Euro
France is a central player in European politics and it strongly influences the economic and social policy decisions. The change in the country’s presidency in the 2017 elections will have a strong impact on the euro, since the French economy represents around 15% of the European GDP. (FXCM, 2017)
The euro has continuously maintained popularity within the French population because it protected France against inflation and frequent devaluation. However, “[t]he truth is that we must collectively recognise that the euro is incomplete and cannot last without major reforms.”, acknowledges Macron. He added, “[I]f we don’t move forward, we are deciding the dismantling of the Eurozone”. Macron aims on setting up a common Eurozone treasury, headed by a single finance minister. This treasury would consist of tax revenues contributed by member states. Furthermore, the appointing of a Euro Commissioner in Brussels, who would coordinate the social and economic policies in the Eurozone, is supported by Macron. He further aims on implementing a Eurozone parliament, which should form of fiscal and political union and should therefy, save the Euro. (Worstall, 2017)
And we need Europe because Europe makes us bigger, because Europe makes us stronger
In short, Macron focuses on a renewed cooperation within Europe. His global approach intends more integration in Europe, and he focuses on implementing a common Eurozone treasury, creating a single (fiscal) currency union. The French economic and political influence is key for European integration and future direction. “Europe, it’s us. We wanted it. And we need Europe because Europe makes us bigger, because Europe makes us stronger”.
Maaike Broeksma & Niels van Lohuizen 30-05-2017
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FXCM Market Insights (2017, April) How Will The French Presidential Election Affect The Euro?
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