What does the composition of President Macron’s post-election government tell us about France’s likely reform programme? Were the four early resignations a sign of weakness or of strength? Is the young President in as strong a position as he looks? And, assuming things are going in the right direction, who will be the early winners on the Paris bourse?
The story so far…
Having been sworn in as the eighth president of the Fifth French Republic on 14 May, President Emmanuel Macron appointed Édouard Philippe, the little-known mayor of the unglamorous port-city of Le Havre to be his care-taker Prime Minister. 46-year old Monsieur Philippe came to the job with a fresh and unconventional CV. He had been elected on the Republican ticket – the party of Nicolas Sarkozy and the unsuccessful presidential candidate, François Fillon – but had let it be known that he had once been a socialist.
A keen boxer, author of some racy political thrillers, fluent in German and trendily bearded, Monsieur Philippe looks like the sort of fit, smiley, suntanned dude that you might find surfing at Biarritz this time of year. Personable and articulate, he assembled a cabinet of worthies of various political persuasions (more below) but conspicuously said nothing about economic policy.
Then came the legislative elections for the 15th National Assembly (the lower house of the French Parliament). Played out in two tours or rounds, as is the way of the Fifth French Republic, the final results, as we learnt on the night of Sunday, 17 June, were an astonishing victory for the youthful President.
His République en Marche (REM) party (recently renamed in case anyone thought that he had named it after his own initials) gained 308 seats out of the total 577 in the National Assembly. Considering that this political party did not exist even fifteen months ago except as a glint in the President’s eye, that is astonishing.
Moreover, a sister party, the Democratic Movement (universally known as MoDem), led by veteran centrist Francois Bayrou (a man who has fought three Presidential elections and who is widely regarded by both left and right) won another 42 seats. These MoDem deputies (MPs) went into coalition with their REM comrades. That gives the President and his Prime Minister the guaranteed support of 350 deputies out of 577 – a persuasive majority that Mrs May could only envy.
Something remarkable has just happened in one of the world’s most remarkable countries.
Then the Republicans (the French analogue to the Tories – only they are superior gastronomes) won a chunky 112 seats; and various democratic rightists won another 24. Of this bloc, 38 deputies have announced their intention to support the President, while 92 intend to oppose him. The Republican opposition is looking fissile and squalid arguments have broken out within their ranks.
This means there is an impregnable majority in the National Assembly for a pro-market reformist agenda. Something remarkable has just happened in one of the world’s most remarkable countries.
As for the Socialists – they were humbled. This party, which contributed two of the Fifth Republic’s presidents, emerged with just 30 seats. Former Prime Minister Manuel Valls, once thought of as President Hollande’s natural successor, just managed to keep his seat in Essonne, near Paris. He has since pledged his support for President Macron.
Jean-Luc Mélenchon’s La France Insoumise (which I translate as A France that won’t lie down – but never trust my French) won 17 seats. These are the Gauloises-smoking Corbynistas who know their Marx backwards – but a slick operation for all that. They have allies: Communists (yes, they are a protected species in France) (10); Regionalists and other Green-inclined weirdos (also 10).
Marine Le Pen was finally elected to the National Assembly – along with a pitiful seven other National Front deputies. It is as if a ravening jungle tiger was reduced to slithering through a cat-flap to lap up a bowl of tepid cream. (She is also facing a lawsuit bought by her octogenarian father, Jean-Marie, who is coming after her for €9 million of electoral funds.)
The only worry for President Macron – and indeed for French democracy as a whole – was that this political revolution was accomplished on the slenderest turnout in modern French electoral history. In the first round (where people choose between a plethora of candidates) the turnout was just 48.7 percent; and in the second round (choosing between just two candidates) it was a sickly 42.6 percent. As the first French President to use spreadsheets and smartphone apps, Monsieur Macron will know that that leaves enough room for future slip-ups. And he is planning accordingly.
Incidentally, in a nation where mathematicians are revered, one of the new REM deputies is Cédric Villani, a genius-level mathematician and winner of the most prestigious global award in mathematics, the Fields Medal, in 2010. He is also famous for his huge and ornate velvet cravats. If the President (no slouch himself) needs help with his figures – or with the Boltzmann equation – he will know whom to call.
Names to note
Monsieur Philippe was re-appointed as Prime Minister by the presidential monarch. But, as well as the Prime Minister, look out for Bruno Le Maire, the Minister of Economy & Finance.
Monsieur Le Maire (who, unlike most French ministers, has never been a mayor) was the Republican Minister of European Affairs and then Minister for Agriculture under the government of François Fillon, who served as Nicolas Sarkozy’s PM from 2007-12. He is a Europhile who is also a social and fiscal conservative. He has already announced that he will work towards a fiscal deficit of less than three percent of GDP (something which is actually obligatory under the EU Stability Pact but which France has blithely ignored for decades). That will be quite a challenge.
Jean-Yves Le Drian at 69 is 30 years older than his boss and is Minister of Foreign Affairs. He is a Socialist who was Minister of Defence for a full five years in President Hollande’s government. Gérard Collomb is Minister of the Interior. Previously on the moderate wing of the Socialist Party, the mayor of Lyons was amongst the first high-profile Socialist politicians to back President Macron.
A star is born
At the EU summit in Brussels over 22-23 June a smiling Emmanuel Macron was the star of the show: leaders fought with one another to have their photo taken with the dazzling Wunderkind; and Frau Merkel paraded her new favourite next to her during her press conference with evident pride.
There was just one note of dissent on the part of Viktor Orban (PM of Hungary) and Beata Szydło (PM of Poland) who did not appreciate the young President’s lecture on their need to take in more refugees. It was also significant that the new President’s proposed Buy European Act to restrict public contracts within the bloc to EU companies was quietly lost in translation.
Coming or going? Four new ministers resign…
On 21 June the President purged four of his new ministers even before the National Assembly had even met. The most high profile of these was MoDem leader, Francois Bayrou, who as Minister of Justice had ironically been appointed as anti-corruption czar. He was shown the door pending investigation for alleged misuse of EU funds. Sylvie Goulard, the Minister of Defence was also sent packing. In so doing, the President has set the novel principle that even the merest whiff of scandal will not be tolerated.
But scandals – or affaires as the French call them – are endemic to French politics. It was then revealed that Muriel Pénicaud, Minister of Employment (a pivotal brief for an administration that seeks to reform labour laws) is being investigated over claims of “favouritism”. Supposedly, she awarded a €400,000 contract to Havas SA (EPA:HAV), the public relations company, when she was head of the state investment agency, Business France, without putting the contract out to tender. A preliminary enquiry by the General Inspectorate of Finance swiftly concluded that Madame Pénicaud was not personally responsible.
The President has set the novel principle that even the merest whiff of scandal will not be tolerated.
Moreover, on 24 June, Monsieur Macron’s protégé Richard Ferrand, who had been forced to resign as Minister for Territorial Cohesion (local government and housing) days earlier, won a party ballot to lead the REM-MoDem grouping in the National Assembly. Monsieur Ferrand is under investigation over a property deal. These deputies, the majority of whom are political novices, were attending a crash course in parliamentary procedure.
So, in the view of most French people I have spoken to, far from weakening the President, the resignations have actually reinforced his authority. Monsieur Bayrou was the one big beast who might have challenged Emmanuel Macron – and now he is out.
And the reform programme?
Nothing concrete has been advanced as yet, but the speculation in the French media is that the Macron presidency will end the compulsory 35-hour week; it will liberalise labour laws so that French companies will find it easier to hire and fire people; and it will radically reform France’s byzantine state pension scheme. The opposition to these changes will be found not in the National Assembly but in the streets. There will be blood. Or, at least, strikes.
Monsieur Macron’s team will seek to cut the fiscal deficit. As in the UK, spending cuts will be bitterly opposed by interest groups; so the main emphasis will be to hold spending constant while stimulating economic growth. Ideally, economic growth should be greater than Germany’s so that the GDP-per-capita gap between the two countries will begin to close. But how to cut the deficit when capital gains tax and taxes on dividends are supposed to be cut? It will be interesting to see how Monsieur Le Maire squares the fiscal circle.
One way by which growth might be stimulated is by incubating new technology companies. President Macron has said that he wants a France that thinks and moves like a start-up. He is thought to be envious of London’s Silicon Roundabout. And in the first quarter of this year, French technology companies attracted more capital than their British counterparts for the first time in a decade.
The President has already launched a €10 billion “vision fund” to supply venture capital for technology start-ups. With amazing things underway in the worlds of Artificial Intelligence (AI), self-driving electric cars, robotics and medical technology (as my regular readers will know), Monsieur Macron wants a piece of the action.
The reform of France will not be accomplished overnight. Monsieur Macron’s supporters are already talking about a second five-year term. In a reign of ten years, it is just possible that the presidential monarch could re-dynamise the French economy before his 50th birthday.
Europe’s future
A France with a higher growth rate would create an entirely new dynamic in Europe. President Macron has relaunched France’s claim to be the equal partner of Germany in the European project. This is both good news and bad for Germans. On the one hand, the Germans, not being born great in their 1990 reunification, feel uncomfortable about having greatness thrust upon them. On the other hand, they know that a stronger France will demand something in return for its support.
Business leaders regard the Macron presidency as a one-off opportunity to address France’s relative economic decline in comparison to Germany. “France will not have another chance like this”, said Pierre Gattaz, head of France’s employers’ federation, MEDEF (equivalent to the CBI in the UK). By virtue of some extraordinary political alchemy, many on the left feel much the same.
Business leaders regard the Macron presidency as a one-off opportunity to address France’s relative economic decline in comparison to Germany.
As for les Anglais, President Macron has established good working relations with Mrs May, who appeared charmed by him at their summit meeting in Paris on 13 June. That was when the President told the British: “The EU door remains open”. (Charm and cunning are often bedfellows.)
Emmanuel Macron is a North European – he hails from Amiens, a centre of Protestant humanism in the Reformation – and was only sent to Paris in his late teens. (Of course he then became an elitist establishmentarian). Around 1999, he worked as an assistant to the Protestant phenomenologist philosopher, Jean-Paul Ricoeur, a follower of Martin Heidegger – a German disciple of the marriage of poetry and technology.
This Northern European French President wants to reform the EU as well as France in ways that the British might have found constructive – if they had decided to remain. He proposed at the Brussels summit that states such as France should be allowed to restrict the inflow of workers from (Eastern) European states where labour wages are significantly lower. France has already tightened its borders – there are now agents of the PAF (Police aux Frontières) on the Belgian frontier.
If President Macron had been in the Élysée early last year instead of the lugubrious, panda-like President Hollande, Mr Cameron might have come away with a much more favourable deal for Britain…But such historical counterfactuals, fascinating as they are, do not really get us anywhere.
More practically, if I were Mrs May, I would keep up the charm offensive with the handsome and clever young emperor. My hunch is that he listens to logic and will not allow a still-fragile, though more confident, Europe to do something very unwise – as would Frau (I-am-a-Dalek) Merkel and her Luxembourgeois side-kick.
His diplomatic clout is growing by the day. Even the Donald is not immune to his charms. Having already welcomed President Putin to Versailles, the French President will welcome the 45th President of the USA for the Bastille Day military parade on 14 July.
(No doubt he will berate Mr Trump in private for his having binned the Paris Climate Accord. Although the Paris Accord was a flimsy deal, I shall explain soon why America will lose much more than it gains for not participating in this framework. While Mr Trump re-opens disused coal mines, the European and the Chinese are surging ahead with renewable energy technology.)
The balance of power
Last month, I warned readers not to be Mad About the Boy – as everyone else is. He is an instinctive Euro-federalist who wants to standardise corporate tax rates (and probably VAT as well). But he is not an Anglophobe. On the contrary, he probably understands better than his three failed predecessors the importance of the UK to French – and European – security and prosperity.
Back in the early 16th century Cardinal Wolsey established the principle of the Balance of Power in Europe as the lodestone of English foreign policy. A more equal Franco-German axis is much in Britain’s interest, inside or outside Europe; and it will redound to Europe’s advantage. While the Italians talk about an end to Franco-German leadership in Europe, only France, securely anchored in the EU, and with a revitalised economy, can act as an effective counterweight to a rampant Germany.
Investment outlook
The CAC-40 is up about five percent since the first round of the Presidential election – but it could have much further to go if the markets get the idea that President Start-up is for real. Just as the London property market stalls, prices of high-end Parisian apartments are already up 10 percent, largely driven by wealthy foreign buyers.
I agree with Jim Mellon that French automotive giants Renault SA (EPA:RNO) and Peugeot (EPA:PSA) look cheap. They are both in strong competitive positions yet the first is trading this morning on a P/E of just 6.4 and the second on 10.4. Similarly, global leader in nuclear technology EDF (EPA:EDF) and mega-utility Engie SA (EPA:ENGI) are trading on modest multiples while both pay decent dividends.
There is a good chance, in my view, that the young emperor will pull it off. As I argued in the May edition of the MI magazine, now is a good time to buy large cap French stocks. The only way is up.