Is Macron’s France beyond reform?

15 mins. to read
Is Macron’s France beyond reform?
Frederic Legrand - COMEO /

Emmanuel Macron and the Goblet of Fire

French President Emmanuel Macron is a dynamic young wizard. But the fundamental reform of France may be beyond even his magical powers.

One year in

He established a centrist political movement out of nothing (La République En Marche or REM) and was elected Head of State on its ticket just 14 months later. His movement then won a convincing majority in the Assemblée National, the French parliament. The blitzkrieg of legislation has been exhausting for all but the man in charge who still looks fresh on just four hours sleep per night.

He has travelled 160,000 kilometres around the world; he has transformed his country’s image abroad. He has plotted a new course for the EU. France no longer looks like the sick man of Europe and might even become a Mecca for entrepreneurs. He is, after all, the youngest, freshest, best looking and probably the most intelligent European leader. (Not that that says much.) He has dazzled the media and steals the limelight wherever he goes.

But has he even begun the task of reforming France? Before we assess the brilliant young wizard and his chances of success, let’s just remember why he was elected President of France exactly one year ago this week.

La maladie française: a diagnosis

I would cite six main symptoms of a troubling condition which can afflict high income former colonial powers with a rich heritage – where socialist-inclined political and intellectual elites exert a disproportionate influence.

The first is that the trajectory of the country’s national finances was completely out of control. The French state, as Monsieur Macron said shortly after gaining power, is addicted to spending. The French government still spends more than 55 percent of national income – a figure well out of line with its major competitors. Its debt-to-GDP ratio was rising alarmingly and even now stands at about 97 percent. The county has not run a budget surplus since the 1970s.

The second was that the growth rate of GDP had been well behind that of its peers, especially Germany, for about 20 years, creating a marked disparity in the two countries’ standards of living. When President Mitterrand left office (1995) France had roughly the same GDP-per-capita as Germany. Now it is 15 percent lower[i]. Under De Gaulle France experienced Chinese levels of growth of up to 10 percent per year. Since the financial crisis, until very recently, the French economy was stagnant.

This resulted in high levels of unemployment – exacerbated by a highly inflexible labour market. For much of the first years of this century unemployment remained stubbornly above 10 percent – and is still at around 9 percent. As collateral to this, social mobility – the inability of ordinary people to escape near-poverty, over time – has become as big an issue in France as it is in the UK.

Third, an influx of immigrants, facilitated by Europe’s open borders and its refusal to police the vulnerable frontiers of the Mediterranean and Aegean Seas, resulted in social disorder. Paris is still surrounded by bidonvilles (shanty towns) that would not be out of place in Soweto or the favelas of Rio de Janeiro. The “Jungle” in Calais was regarded by most French people as the disgrace it was – just as across the Channel in Britain.

Fourth symptom: while the Anglo-Saxons seemed to nurture hi-tech start-ups, France invested overwhelmingly in large mature industries where rates of return on capital were lower. Not only are labour rates high in France but employer costs (social charges) are amongst the highest in the EU at up to 60 percent of salaries. Don’t get me wrong, I am a Francophile, but France is one of the last places where I would set up a business.

The fifth symptom was that the French tax system was not fit for purpose. Both personal and corporation taxes were out of line with neighbours. Under President Hollande high-earners had to pay a top marginal income tax rate of 75 percent. In addition, anyone who owned more than €1.3 million of personal assets was obliged to pay a wealth tax of up to 1.5 percent on those assets. Aspirational young French people had a tendency to leave the country and to take their wonderful technical skills (courtesy of France’s excellent educational system) with them – thus reducing the tax base.

Sixth, and most egregiously, the aristocracy of labour (as Lenin put it) – state employees, who in France are everyone from postmen to university professors – enjoyed and continue to enjoy the most extra ordinary privileges. Meantime, ordinary folk – including the overwhelming majority of France’s ethnic minorities – must pay for them.

The Social Model

An experienced train driver in France earns over €5,000 a month and can expect to retire on a salary of around 70 percent of that figure from the age of 52. Of course, such retirement provisions were agreed way back in the late Fourth Republic (1950s) when train drivers endured lower than average life expectancy. These days, with a life expectancy in France of 82.4 years, retired train drivers can expect to live on their generous pensions for longer than they actually worked on the railways. The President’s efforts to rein in these extraordinary benefits have met with strikes this week – which are set to continue.

The backdrop to this was that the entire French political class, going back to the 1950s, was so invested in perpetuating a system that was clearly unsustainable over the long-term that any proposed reforms were torpedoed as politically unworkable.

The long reign of President François Mitterrand (Socialist, 1981-95) was succeeded by that of his nemesis, Jacques Chirac (1995-2007), nominally of the right, but who sanctified France’s social model. He in turn was succeeded by a maverick, Nicolas Sarkozy (2007-12), who, despite great showmanship, achieved little because he bottled out of tough decisions. And yet France went Socialist again in 2012 with Francois Hollande as President. The latter’s reign was entirely devoid of moment except when he appointed a dynamic young technocrat as economy minister – the then unknown Emmanuel Macron…Indeed, even left-inclined French voters look back on Monsieur Hollande’s tenure as five wasted years.

What the wizard prescribed for La Maladie Française

The President has sought to push through a series of pro-business reforms – including the contentious reforms to France’s notoriously inflexible labour market – la réforme du code de travail – last September. This was accomplished with little parliamentary scrutiny. Like Cardinal Richelieu in the 17th century, he rules largely by decree (ordonnance). Indeed, the problem now is that the main opposition to his policies is not within the apparatus of the state but rather on the streets.

The wealth tax (l’impôt de solidarité sur la fortune (ISF)) was replaced on 01 January this year with a property tax (l’impôt sur la fortune immobilière (IFI)). This is set on a scale between 0.5 and 1.5 percent for real estate assets only in excess of €800,000. Other taxes have been cut. The President has put in train a cut in taxe d’habitation (roughly equivalent to UK Council Tax) such that 80 percent of households will in due course be exempt. Corporation tax (l’impôt sur les sociétés) is down from 33.3 percent to 28 percent for most companies. The Macron presidency has reduced capital gains tax with a flat tax and lowered income taxes for the very rich.

The problem now is that the main opposition to his policies is not within the apparatus of the state but rather on the streets.

Add to this a whole raft of measures to reform state education – even primary school education – and to open up young workers to professional qualifications and German-style apprenticeships. (The benchmark is evidently Germany.) He is reforming unemployment pay such that those who receive unemployment benefit must show that they are looking for work (much as in the UK).

A recent bill to get tough on asylum seekers and illegal immigrants had broad support but, for his opponents, it reinforces the idea that somehow Macron is a creature of the far right. Even 15 REM MPs (out of 312) voted against the bill. Meanwhile, those who incline towards the right will tell you that he has done nothing to foster better social integration of minorities.

Right now though, the main theme is budgetary discipline. By the end of 2017 France’s budget deficit fell below the EU-imposed 3 percent limit for the first time since the euro was formally launched in 2002. That, in my view, is a remarkable achievement.

How the patient has responded

The patient is unhappy. Public sector workers conduct sporadic wild cat strikes and the students – or parties claiming to be students – have taken over the universities. A friend of mine felt vulnerable when she returned to the campus of a prestigious university recently to submit her dissertation. She had to pass through a group of sour-faced men of Arab heritage before she could leave. The police meanwhile were nowhere to be seen: they fear any intervention in these illegal takeovers could light the tinder box.

[STOP PRESS: On the night of 08-09 May the Gendarmerie entered the Université de Juan Jaurès, Toulouse to remove some of the self-appointed protesters. Two police officers were injured – apparently by a grenade! This was barely reported – even within France, except by La Depeche.]

According a poll by BVA Opinion 57 percent of the French are dissatisfied by Monsieur Macron’s reform programme. While his achievements on the international stage are admired, his approach to tax and immigration are not. The 20 point fall in his popularity rating is worse than Jacques Chirac and François Mitterrand, but not as bad as Nicolas Sarkozy and François Hollande during their respective first years in office. Another poll suggests that the National Front’s Madame Le Pen and Monsieur Mélenchon – the Trotskyite who won nearly 20 percent of the vote in the first round of the presidential election – would share a third of the vote with Monsieur Macron in a presidential election held now.

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It is mildly surprising who is beginning to turn against Macron. Older voters, rural voters, and former Socialist party supporters who defected to REM are shifting away. Well off retirees have been especially difficult to please. Although they have benefited from the abolition of wealth taxes, Monsieur Macron has increased the level of social charges paid on state pensions – so their monthly disposable incomes have fallen.

The next initiative is for a “plan for the vulnerable”. This will be a palliative to persuade the French to embrace a more flexible economy and labour market. Where Macron stands on protectionism is more nuanced. While he sings the praises of free trade he probably harbours deep-seated mercantilist instincts. His early calls for European preference have been stilled – perhaps by German pressure: but these latent instincts may yet reassert themselves.

How the wizard does his magic

Anne-Sylvaine Chassany’s recent piece in the Financial Times[ii] portrays a President obsessed by detail. The President’s style is often described as technocratic– which I understand to mean that he is comfortable with spreadsheets. (Mr Blair, by contrast, did not even know how to send an email.) It is also centralising – which normally means that the President peers over his ministers’ shoulders.

Precisely because President Macron does not have to pander to a political machine to which favours must be repaid, he has been able to concentrate decision-making power into the hands of his tiny inner circle. But do not expect policy to be entirely coherent – a tendency towards ambiguity runs deep in the French psyche. One must be free to be paradoxical and one must be paradoxical to be free, said the President, in contemplative mood.

He attracted support from both left and right with the promise of a bottom-up approach to the reform of France. Instead, however, he has rolled out a top-down style of government in which virtually all policy is determined in the small office he occupies at the rear of the Élysée Palace. (And, by the way, in the line of sight of the British Embassy in the neighbouring palace, the Hôtel de Charost.)

In particular, he has had to summon Prime Minister Édouard Philippe and Finance Minister Bruno Le Maire to reconcile their differences on fiscal matters. But the eminence grise – the power behind the throne – is neither of these: it is Alexis Kohler, the President’s Chief of Staff. Monsieur Kohler is another Énarque who has managed to evade the media spotlight.

Yet some strange policies are pouring forth. Whose idea was it to reduce the speed limit on primary roads to just 80 km/hour (coming to effect on 01 July)? Was it to pacify the Greens or is the legislation factory out of control? One thing I know of old about my French friends is their innate love of speed. Expect blocked autoroutes come the summer…

How French markets have responded

Since the wizard came to power the CAC-40 is up – but not by much. (About 4 percent on a 12-month basis – during a year of decent growth figures – though now European growth is heading down.) And it has had more down days than up days. French government 10-year bonds are yielding very marginally less than one year ago (0.803 percent at close on 09 May). So, the wizard’s wand has not worked on the markets…yet.

Margaret Thatcher or Napoleon?

Exactly one year after Monsieur Macron’s election and 50 years after les évènements of 1968, when Paris was taken by storm as a workers’ and a student uprising nearly toppled President De Gaulle – France is wracked by protest. What are the French so incensed about?

Even if his reforms succeed they will take years to flow through to increased growth and lower unemployment.

Like Margaret Thatcher, Emmanuel Macron has set out to challenge the prevailing post-war consensus and has a neo-liberal solution to France’s woes. Many French people I know had a sense last year that it was now or never for France – but there has been recidivism by those who fundamentally would like to have a quiet life. Even if his reforms succeed they will take years to flow through to increased growth and lower unemployment.

He is also the youngest French leader since Napoleon and sees the world – like Presidents Putin and Xi – in strategic terms. What is at stake, for Monsieur Macron is nothing less than France’s place in the world. His France will be a motor for European integration – the solution to the immigration crisis is, of course, a European Border Force…He has already displaced Frau Merkel as de facto the person the American President calls when he wants to speak to Europe.


Perhaps the best way to analyse the likely outcomes of Macron’s presidency is to apply a simple SWOT Analysis – as boring old consultants do.

Monsieur Macron’s greatest strength is that he is abundantly energetic, purposeful and clever – and that he has time on his side. What he really believes in, however, is open to question: it is not clear whether he is a social democrat or a neo-liberal proponent of market economics in the mould of Margaret Thatcher. Perhaps, like Mr Putin, he is beyond ideology. On the other hand, he has no rivals – and it is very unlikely that a candidate of his stature could emerge in the near future – though there is some sign that the Socialist Party may be in recovery mode.

Monsieur Macron’s greatest weakness is that his political movement or party (whatever you want to call it) has no roots. It emerged in a mood of despair with the status quo – but it could dissolve as rapidly as it arose. Membership seems to be already past its peak and most of its activists have gone to ground. Most of the REM MPs are complete political tyros. President Macron and Monsieur Kohler are reportedly paranoid about disloyalty, which reinforces the tendency for policy decisions to get little scrutiny. Preternatural socialists may never vote for M Macron again while the far right, still significant, disdains his rule.

And, OK, supposing Macron succeeds in revivifying France’s economy – will that assuage the problems of ethnic identity, secularism and terrorism that seem to have gone into abatement of late? That is still not clear.

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His great opportunity is paradoxically (that word again) Brexit. Brexit allows the French mandarinate to accelerate their drive towards European integration without the British anchor dragging behind. (Ex-President Hollande, in his recently published memoirs, cannot conceal his delight about Brexit.) It also means – or so President Macron hopes – that France can poach a host of financial services businesses, fintech start-ups and possibly some manufacturing from the UK. Bonne chance, mes amis!

(A quick aside to my remaining Remainer friends in the UK, here: they wouldn’t have us back even if we begged to come back…Which is why the current Brexit negotiating impasse is absurd…We should just say au revoir…But more on that soon!)

The threat to President Macron’s still-young presidency is that inertia within the French state bureaucracy will stifle reform. Moreover, that old bugbear, German prudence, might frustrate Monsieur Macron’s aspiration to align French goals with those of Europe as a whole.

The Macron project to transform France – the goblet of fire – has legs. But it is very far from a done deal. You have to admire the wizard’s audacity, though – and his panache. That alone makes France more investible than for many years.

[I] CIA figures – which put France and the UK at identical levels for 2017. See:

[ii] The Macron Paradox, FT Weekend Magazine, 05-06 May 2018.

Comments (3)

  • TonyA says:

    An excellent and characterful analysis. I only wished I shared Victor Hill’s optimism about Brexit and the ability of we Brits to engage our animal spirits and flourish outside the EU. At the moment we are stuck between our lumpen politicians and anxious-to-please negotiators and a cynical EU strategy designed mainly “pour encourager les autres”, definitely not seeking our (entirely achievable) mutual benefit.

    I confess I voted Remain, but have since been driven towards Brexit by the subsequent behaviour of Barnier and his masters; like most Brits, I just want them to *get it over with* on terms that are fair, or at least palatable, to both sides. The current EU strategy and tactics are hugely divisive and unequal, and need to be strongly resisted and circumvented.

  • SKYSHIP says:

    “I confess I voted Remain, but have since been driven towards Brexit by the subsequent behaviour of Barnier and his masters; like most Brits, I just want them to *get it over with* on terms that are fair, or at least palatable, to both sides.”

    It is certainly true that the eyes and minds of many Remainers have been well and truly opened by the appalling machinations of the EC – led by a man who plainly has his eyes and mind on his next job as Juncker’s heir apparent.

    Regrettably the biggest enemies are the enemies within – the urban liberals such as those in The Lords, The Media, the self-appointed commentariat and even a few still sheltering, blind and unrepentant within the Tory party!

    Then there is the one Supreme Enemy, the leader who is now too afraid to make a decision – Theresa May.

    It increasingly looks as though the UK is doomed to an unsatisfactory Brexit unless she or someone else shows backbone, calls the EC bluff and takes us out under perfectly acceptable WTO rules.


  • Julian Strickland says:

    I read a shareholder leaflet from Total at the Master investor show. When I read the onerous French taxes involved in holding their shares I decided not to bother to invest.

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