Matthew Lynn

Emmanuel Macron has already given up on reforming France

Emmanuel Macron has already given up on reforming France
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Labour regulations were going to be swept aside. The euro would be reformed, tech entrepreneurs would flock to Paris, and Brexit-fleeing City bankers, flush with tax-free bonuses, would be quaffing champagne in the bars of the Latin Quarter. When Emmanuel Macron was elected President of France, there was a lot written about how he would finally reform the French economy, and restore the euro-zone to healthy growth at the same time.

True, plenty of people expected some bruising battles with the unions, some tough negotiations with the bloated public sector, and some fights with Angela Merkel. Whether Macron would ultimately win those was always an unknown quantity. There was one thing they didn’t expect, however. That Macron would cave in and give up on any meaningful reform within only a couple of months. And yet that is what is happening.

Only this week, Macron has made an extraordinary decision to nationalise a shipyard rather than see it fall into the hands of the Italians. The St-Nazaire yard, France’s largest, was set to be taken over by Italy’s Fincantieri. At the last moment, however, Macron stepped in to take it into public ownership.

A shipyard? Let’s be honest here, even John McDonnell probably doesn’t think building ships is the way forward for a 21


-century economy. Nor can the Italians really be portrayed as evil asset strippers. It is the decision of a very traditionalist French interventionist.

But that is far from all. In his initial budget plans, he has already submitted to German demands for fiscal austerity. True, at 56 percent of GDP France has a dangerously out-sized state. But it has no serious budget problem. Its deficit is only 2.8 percent of GDP, less than ours. What France desperately needs is to reflate demand, because unless that recovers it is hopeless to imagine that there can be any structural reform. Sure, it’s good to make it easier for companies to hire and fire staff, but businesses don't create new jobs when no one is buying stuff. Against a backdrop of austerity, reform is doomed.

Even worse, he has postponed reforms already agreed. France was scheduled to switch to a system that would deduct tax at source, like our PAYE - it is the only major economy where everyone still gets paid gross, and pays their taxes later. Macron bottled it, even though it would have made the tax system far more efficient. In Le Monde, Thomas Piketty, the left-leaning French economist famous for his work on equality, skewered him for that. It was, in his view, a sign of ‘a cynical approach to government with no real desire for reform’.

Industrial protectionism, stalled reforms, and fiscal austerity are a toxic mix. Unless there is a dramatic change of course in the autumn, and there is no reason to think that there will be, it is now inevitable that Macron’s Presidency will be an economic failure. Sure, there is a temporary upswing across the euro-zone this year, fuelled largely by a deluge of printed money from the ECB. Even so, France is only growing by 1.5 percent (slower than the 'sick man of Europe', aka the UK), which is not nearly enough to make a dent in an unemployment rate that remains one of the highest in the developed world.

The mood in France was ugly enough in the 2017 election. Voters were angry with an establishment that has presided over what looked like relentless economic decline. In the end, they opted for a radical centrist administration that promised it could change things. If that fails as well, the mood will only get darker – and it is anyone’s guess what comes next.