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Home / News / France strikes back: optimism abounds as Macron takes the helm

france strikes back

Emmanuel Macron’s election victory brought equal measures of relief and optimism in France, for keeping the far right at bay and pledging economic growth. But the necessary reforms will entail taking on the powerful unions, which could test the new president’s popularity – and resolve – to the limit. Natasha Turak reports.

The landslide election of centrist pro-EU Emmanuel Macron in May buoyed the euro and allowed markets to breathe a sigh of relief that France’s most unpredictable election in modern memory was over. Far-right candidate Marine Le Pen was soundly defeated, and 39-year-old former investment banker Mr Macron, leader of the nascent La République en Marche (LREM) party, was swept into the Élysée Palace on the promise of a stronger EU, labour reforms and a commitment to globalism.

“In France, we have sensed among our clients a real enthusiasm about the election of Mr Macron,” says Carol Santoni, partner at business law firm Racine in Paris. “He is perceived by overseas investors, private equity funds and fund managers as a sign of genuine hope regarding the expected economic growth, the implementation of necessary reforms in France and a pro-Europe attitude.”

Mr Macron’s first weeks have been broadly deemed a success. Voters seem impressed by his performance in the diplomatic arena, from a frank conversation with Russian premier Vladimir Putin to an unusually long but assertive handshake with US president Donald Trump that garnered much attention on the internet. But the real work lies ahead, as the new president’s most ambitious election pledges – labour and business reform – run the gauntlet of the French union system. Much of his success will depend on whether LREM can achieve a majority in France’s National Assembly following parliamentary elections in mid-June.

Union issues

France is renowned for its labour strikes; the right to strike is enshrined in the country’s constitution, and unions have the power to paralyse parts of the economy. In May of 2016, the former government of François Hollande introduced labour reforms involving the extension of the 35-hour working week to 46 hours and giving employers more freedom to lay off workers.

Unions, which saw this as an affront to workers’ rights, responded by striking for several months – litter mounted in the streets, trains and planes were cancelled, and petrol stations ran dry. Air France and oil multinational Total each lost more than $45m between the months of May and June, and Total’s CEO threatened to reconsider the company’s investments in France. 

“France has had an abnormally high level of unemployment for decades, which can be explained in part by its labour laws,” says Charles Fabry, partner at the Paris office of law firm Squire Patton Boggs. Unemployment has hovered around the 10% mark since 2013, and nearly one in four young people are unemployed. Strict worker protections, high employer costs and heavy red tape deter many employers from hiring.

“While France’s lagging performance can be explained by many different factors, it has become increasingly clear that the rigidities of the French labour market have prevented unemployment from falling despite a noticeable recovery in the eurozone,” says Mujtaba Rahman, Europe managing director at Eurasia Group, a political risk consultancy.

A mixed landscape

Well aware of this challenge, the president does not appear to be wasting time. His centre-right prime minister Édouard Philippe recently announced the government will be holding “intense consultations” throughout the summer with the labour unions.

“The unions don’t seem to be reacting too badly for the moment, but no one knows how it will turn out,” says Mr Fabry. “Mr Macron will probably adapt his reforms to what he perceives to be the appropriate course given his current contacts.”

On the unions’ individual stances, Mr Fabry says: “They’re divided. The number one union, the French Democratic Confederation of Labour, is quite positive. The others, not so much. It’s a mixed landscape for the moment.”

“Mr Macron intends to turn the logic of French labour markets on its head, prioritising company-based agreements over norms negotiated within sectors and the rules defined by law,” says Mr Rahman.

The president also aims to promote investment in technology and attract more foreign companies, often a challenge due to France’s taxation rate being among the highest in the world.

Reform struggles

While Mr Macron’s power to implement policy depends heavily on the outcome of the parliamentary elections, “he is planning reforms to liberalise the labour market, decentralise collective bargaining and bring in a Nordic-style ‘flexicurity’ welfare model”, says Emily Mansfield, an analyst at the Economist Intelligence Unit. “He’s announced plans to cut the corporate tax rate from 33.3% to 25%, with further tax breaks for small businesses, and incentives to encourage job creation.” But, she warns: “He is likely to face resistance both in parliament and on the streets.”

“Getting labour reforms through in France is never easy, but the strongest union in the private sector is moderate and union reaction may prove less of an obstacle than in the past,” says Michael Sippit, chairman at law firm Clarkslegal. “As the UK has learned long ago, serious economic improvement generally needs a limit on the disruptive power of trade unions, while preserving their role and voice in shaping policy as far as possible.”

Reforms may also focus on how to exploit Brexit by taking business from London in the financial sector, Mr Sippit adds – and this has historically been hindered, of course, by France’s rigid regulations.

Meanwhile, taking a hard stance during Brexit negotiations is to be expected, says Ms Mansfield. “This is just in line with the French establishment, which takes the view that non-membership of the EU must necessarily be inferior to membership. Although it is not in France’s long-term economic interests to come down too hard on the UK, the immediate political context requires a firm approach in order to quell the rise of euroscepticism in France and across Europe.”

Cross-section of society

As it stands, pollsters are projecting a potential absolute majority for the LREM in the National Assembly off the back of Mr Macron’s early popularity. Eurasia Group gives it a 70% probability, adding that moderate voters have been impressed by the appointment of a well-balanced cabinet – independent from traditional parties, LREM consists of a fairly even spread of figures from the left, the right and civil society.

Meanwhile, the president must still convince those who voted against him that his vision is in their interests. “What the election has shown is that French politics is now divided between the people who benefit from globalisation and the people who don’t,” says Mr Fabry. “There is one result he must achieve: unemployment decreasing.”

The past few months have seen unemployment fall below 10% for the first time in a few years, and while not of Mr Macron’s doing, it certainly makes his job easier. FDI inflows have also increased from $15bn in 2014 to $46bn in 2016, according to figures from Unctad.

Mr Macron appears to have the wind at his back, but the road ahead will test both his resolve and his ability to navigate France’s complex political landscape. After fixing the French economy, he can look forward to dealing with eurozone reform, Donald Trump, Russia, global terrorism and climate change. After all, there is no striking for the president.  

This article is sourced from fDi Magazine
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