Emmanuel Macron’s achievements in France are both surprising and impressive.
He and his new party La République En Marche do not represent participants in the battle between left and right, but rather one between young and old. The Brexit vote and the Trump phenomenon also represented reactions against what are perceived to be entrenched elites, but neither created such a dramatic and positive change of mood within a country.
Indeed, the contrast between the UK’s political chaos, the US’s Trump phenomenon, and France is stark. Macron’s party claimed 60% of the seats in the weekend’s election. With such a majority, he is in a strong position to – as his supporters hope – transform the position of France.
While Macron’s position does look unassailable from a UK perspective, Jean Médecin, a member of the investment committee at Carmignac Risk Managers, cautioned that his success does not mean that he has a large mandate from the French population to reform every industry. So far, details of changes have been few and reforms announced modest. He represents a Tony Blair-type figure rather than a revolutionary.
The irony is that, as Médecin points out, Macron’s success has been to a great extent a function of the electoral system that enabled him to win 70% of the parliamentary seats but gain only 33% of the popular vote in the first round. Compare that to Theresa May and the Conservative Party in the UK, struggling despite having won 42.5% of the popular vote.
The key issue may be how Macron’s tendency for industrial support and protectionism mesh with Germany’s preference for a Schumpeter-type creative destruction – although perhaps Germany is not so keen as the UK in a totally laissez-faire approach to industrial policy.
Macron, like Trump, has been very short of details. Criticisms of the French economy have tended to revolve around rigid labour laws, with a 35-hour week seen as inhibiting job creation. He has also cited a misaligned education system, dominating unions, and industrial action in sectors such as farming.
While there may be some elements of truth in this, Médecin tells me he can’t remember the last time French farmers were causing disruptions, and points out dynamic sectors such as technology, with Paris becoming another of Europe’s tech hot points alongside London and Berlin. He even praises a dynamic French financial sector, in particular in asset management (although some may disagree).
The key issue that France has is a lack of competitiveness within the euro-zone. If it had its own currency, this problem would have been solved by depreciation. Indeed, some have argued that the euro-zone would be better off splitting into a northern European currency for Germany and the Benelux countries, with France and Italy dominating a southern European currency. That is not going to happen in a hurry. However, Spain has shown the way forward, having managed to improve its internal competitiveness to such an extent that French car companies are now building plants in Spain and the country produces more cars than France.
That is the real challenge for Macron. Having a young president helps as he has a better understanding of what is required to attract talent. Moreover, a crisis is often the best time to introduce radical reforms: Macron’s predecessor Francois Mitterrand reversed his socialist policies in March 1983 with the “tournant de la rigueur” (austerity turn) that gave priority to combatting inflation to enable France to remain competitive within the European monetary system.
This happened because the policies leading up to 1983 were leading France to bankruptcy, says Médecin. He argues that what France needs is firstly a business-friendly agenda that can unleash its growth potential and secondly, to work hard on the European agenda improving the efficiency of European agencies, EU institutions and the governance of the euro-zone. The convergence of economies is still work in progress, made harder by the UK’s Brexit vote.
Making dramatic improvements may not actually require as much new legislation as may be required for revolutionary changes. As the US saw with Trump, animal spirits can be unleashed through words even if no actions follow. With France, relaxing constraints may be easier than making legislative changes, No one is forced to work only 35 hours a week. Companies need to be given the ability to be able to negotiate with employees without being subject to top-down constraints, argues Médecin.
But if improving competitiveness within the euro-zone is France’s key challenge, that means essentially improving its position vis a vis Germany. For France to succeed, it may require its biggest neighbour to be less austere. I look forward to having another lunch with Jean in six months’ time to discuss how Macron has fared with Angela Merkel.