SGI NEWS

Convincing, but Problems Ahead

Is France entering a phase of fundamental change? Emmanuel Macron has gotten off to a convincing start. He is cleverly and decisively enlisting support from politicians and society for his reforms. But he is bound to meet troubles in the autumn.

The authors of this year’s Social Governance Indicators (SGI) Report from Bertelsmann Stiftung, soon to be published, had this to say about France’s capacity to govern and need for reform shortly before the country’s presidential election:

France needs courageous policies that include clear (even if unpopular) choices, frankness when explaining the challenges, more societal dialogue, and a less chaotic and uncoordinated style of governance.

Against this backdrop, the first hundred days (or so) of Macron’s presidency have been extremely encouraging: he wants to overcome the country’s key structural challenges. Problems that have been known for a long time and noted in SGI reports of years past – bureaucracy, national debt, the labour market, vocational training, the welfare state, and modernizing how industrial relations are conducted – are on his reform agenda. He is ready to act – and to do it quickly.

Macron roadmap: labour market, education, tax and debt

He is giving top priority to an extremely controversial reform of the labour market. It is intended to give businesses more freedom to adjust their human resources policy to their commercial position. The reform will enable companies to make agreements on employment, work hours, pay grades, and wage structures that diverge from industry-wide agreements. The president wants to facilitate social dialogue within companies and simplify the long and costly employment tribunal cases that often follow redundancies. In return, he wants to strengthen workers’ social rights to gain advanced qualifications and improve unemployment insurance benefits.

Macron has got full permission from Parliament that this reform shall be laid down by decree. This gives him complete freedom to simultaneously hold ongoing, intensive consultations with trade unions and business federations and flexibly respond to their criticism. The president wants parliament to pass these planned regulations in September. His plan for reform has great economic import but it is also highly significant politically: a litmus test for Macron’s ability to push through unpopular decisions and bring about real change in his country.

Another one of Macron’s focuses is on immediate measures to provide professional qualifications for the unemployed and a reform to the system of vocational training, which he intends to pass in 2018. The goal is to expand dual apprenticeship training, under which schools and companies share the training load. This affects a sensitive part of the system too: school leavers face major obstacles that prevent them from being integrated within the labour market and these have resulted in a notoriously high youth unemployment rate.

A third priority of the president is to hire new teachers in order to send a signal to the difficult, deprived areas in the banlieue. The goal here is to cut elementary school class sizes in half.

Tax policy is Macron’s fourth area of focus. He wants to give additional, lasting relief to businesses, but he also wants to buttress low and middle-income households. However, he does not have a lot of wriggle-room given that President Hollande left office with a much higher deficit than had previously been assumed. In addition, Macron is determined to bring new debt down below the three percent limit in the EU’s Stability and Growth Pact in order to strengthen France’s credibility among its EU partners. This has occasioned delays in the promised tax cuts. However, the 2018 budget bill to be presented in September will contain firm commitments on the next steps in tax policy scheduled to cover the entire legislative period up to 2022 so as to reassure the economic agents.

France is back in Europe

From the very beginning of his presidency, Emmanuel Macron has used the opportunities to strengthen France’s position in international politics, which had faded in recent years. His initiatives as well as his demeanour have been convincing. In the EU, Macron raised great expectations by his resolutely positive approach to integration, which has overcome the country’s sceptical mood about Europe as well as averting populist and nationalist temptations. His step-by-step method – first, regain confidence in France’s solidity with national reforms and return to a balanced budget, then, try to get support for further progress in the European Monetary Union – is welcomed by European partners, especially Germany. This is nourishing hopes for a new and strong Franco-German leadership within the EU.

Decisiveness and negotiating skills are needed

Even if the president’s agenda is convincing and his plans do tackle the country’s core problems head-on, he still needs political support to push them through.

The institutional prerequisites are positive: the president has a clear majority in Parliament. In addition, the constitution of the Fifth Republic gives the president and the prime minister the ability, in principle, to lead the government very effectively, to issue directives to individual ministers, and to ensure the administration’s proper implementation of agreed measures.

The political environment is equally favourable considering that Macron has managed to break up the traditional left-right polarization that is often ideologically fixed and therefore sterile, and to achieve broad consent for his centrist approach. This means he can bring together moderate, reform-minded forces on the left and the right to create a reform coalition for the first time. Whereas Hollande’s political purposes often failed to win support from his own Parti Socialiste, Macron’s plans for reform have so far enjoyed the full support of La République en Marche, the movement he founded in 2016. He wants to act quickly because reforms need time to take effect. However, the initial strong support for the President is fading as his reform and budget policy is spelled out in detail. Macron’s strong personal leadership, along with the rather weak role of his movement and his MPs, are criticized as leading to an excessive concentration of power at the top (‘Jupiter’ syndrome).

Furthermore, Macron will face the strong social resistance that typically springs up in France and the widespread, sometimes aggressive aversion to any measures that are seen as putting business first. Unions have been able to organize many large-scale protests against reforms of that kind in the past. They are openly threatening to flex their muscles in September, when the Parliament is slated to vote on the planned labour market reform. This is another reason why Macron is in a rush to use a strategy of intensive dialogue to get both sides of industry involved in policymaking. Some elements in the union camp are very open to change and Macron wants to exploit that readiness. The first round of several weeks of extensive consultations with each of the eight most important union associations and business associations was concluded at the end of July.

Macron will need his decisiveness and all his negotiation skills to pass the acid test of reforming the labour market. Only then will we be sure that France is truly en marche.