Macron’s Reforms are Critical for France’s Economic Future

The election of Emmanuel Macron as President of France in May 2017 was a novel development in French political history that revolutionized the status quo. The young president’s promises to fundamentally transform France had many feeling hopeful and optimistic about the future. France’s economy was sluggish in 2016, with a high unemployment rate of 10.1 percent, with many hoping that a departure from the status quo might be France’s best chance at galvanizing its economy.

 

A year and a half later, it is safe to say that Macron has not disappointed. Macron’s unprecedented reforms, which his predecessors would likely have never dared to try and implement, are exactly what a struggling French economy needed.

 

There were two main problems with the French economy that Macron sought to address. The first is extremely high public spending. In 2016, government spending represented 56.57 percent of GDP. As a comparison, this number was just 35.42 percent in the United States and 38.99 percent in the United Kingdom. The French government dramatically overspending compared to other developed nations. Moreover, the French state was spending money it simply did not have, worsening the budget deficit.

 

The second problem is a very high unemployment rate, which stems from a stagnant labor market with extremely strict rules on working hours, hiring and firing workers. Luckily, Macron understands these two critical problems and is taking important steps to solve them.

 

Macron acted soon into its first term to address the first problem, that of overspending. In his first budget, Macron took steps to reduce the budget deficit to below 3 percent of GDP, the EU limit. For example, in a risky political move, despite having promised to increase military spending Macron cut military spending by €850 million. It was recently revealed that France’s budget deficit had fallen to 2.6 percent of GDP, the first time since 2007 that the deficit was under the EU’s limit.

 

Across the board, Macron’s government is reducing public spending through seemingly ubiquitous budget cuts. As an example, to great protest, Macron ended a program of state-assisted jobs. Then, in an address to both houses of parliament this past summer, Macron reaffirmed his plans to cut public spending. And, in August, French Prime Minister Edouard Philippe said that the Macron government would now target French welfare spending to combat the deficit problem.

 

Macron’s government has also effectively targeted the second major problem of the French economy, namely the high unemployment rate which exists as a result of a stagnant labor market. In sweeping reforms in the summer of 2017, Macron took many steps to loosen the labor market. He put more emphasis on in-house labor negotiations, meaning that workers and employers would now be able to negotiate labor agreements within their own firms instead of at a sector-level discussion. Moreover, he slashed red tape for firms with more than 50 employees. It used to be that once a firm reached its 50th employee, it would have to nominate workers’ representatives, and set up a works council and a health and safety committee. Macron’s plan combined these three groups into one, drastically lowering costs to firms. He also decided that a firm’s economic health can no longer be used as a reason to oppose the firing of workers, which it previously could. Macron even introduced a set scale for wrongful termination situations, meaning that the old process that could result in monumental payments is now gone.

 

These reforms have loosened the rules around hiring and firing, which was the main reason for the stagnant labor market. Of course, if a firm knows that should it hire someone, it will be extremely difficult to fire that person should they do a bad job, that firm will be much less likely to hire the person in the first place. By loosening the rules around hiring and firing, Macron is helping to galvanize the French economy by creating the conditions that will allow unemployment to decrease.

 

Macron’s reforms are paying off. French public spending has decreased. Business circles are happy with the multitude of reforms around the labor market. In the words of French telecoms billionaire Xavier Niel, Macron has “completely changed” France’s image. Macron’s reforms are undoubtedly addressing the problems at the core of the French economy.

 

The positive results of his pro-business actions are countless. German software company SAP has pledged to spend €2.5 billion in France over the next five years. Google will create 1,000 new jobs. Toyota will invest €300 million on a factory in France, adding 700 jobs along the way. A recent survey by Bain & Company and the US Chamber of Commerce found that 72 percent of US investors were optimistic about the prospects of the French economy, an increase from only 30 percent in 2016.

 

While protests against him are becoming commonplace and his approval ratings seem to be falling dramatically due to a perception in France by many that he is a ‘President of the Rich’, his reforms are clearly having positive effects for the French economy, from increased confidence to higher levels of investment. Macron will continue on this course, continuing to influence the French economy through a series of important reforms.