The Macron Miasma

11 mins. to read
The Macron Miasma

How does a spendthrift state which consumes nearly 57 percent of its GDP change its ways? How does a regulated, highly unionised labour market become flexible? What can a modern economy do about an unemployment rate stuck stubbornly at over ten percent? And how do the French rate the Emperor Emmanuel’s first ten weeks in power? The answers are obscured by the Macron miasma.

Versailles: the Hall of Mirrors

On a hot Monday afternoon in early July France’s new 39-year old President summoned both houses of the national parliament (the National Assembly (directly elected) and the Senate (indirectly elected)) to the Palace of Versailles for a special address.

Versailles, you will recall, was the magnificent seat of the court of the Sun King, Louis XIV, at the very apogee of the French monarchy – a monument to monarchical autocracy frozen forever in creamy Parisian limestone. It is surrounded by a succession of formal arcaded gardens adorned with monuments which speak of the glories of France. There are few more grandiose settings on the planet.

“If the Republic of inefficiency must end, so must the Republic of short-termism, petty deals and routine”, the Jupiterian President declared to the assembled dignitaries. And then he handed over to his Prime Minister, Édouard Philippe, for the dull nitty-gritty – and was whisked away by helicopter.

The next scene in which the French people saw him (modern life is a movie, remember) was being winched from the said helicopter down to the open hatch of a French nuclear submarine, Le Terrible, somewhere off the coast of Brittany. Watching this on live TV I couldn’t decide whether Monsieur Macron, in battle fatigues and life jacket, better resembled James Bond or Ken the action doll (as in Ken and Barbie).

Meanwhile, Monsieur Philippe told MPs and Senators that the promised tax cuts could not be delivered until the national finances were restored to some semblance of good health. As if by-the-by he then told them they were going to be culled – the National Assembly of 577 members will be reduced by about one third. Then came the real meat.

“We are dancing on a volcano of debt” said Monsieur Philippe. Chronic state overspending, so long out of control, must be tempered. The Prime Minister reminded his audience that France now owes its creditors €2.1 trillion – nearly 100 percent of GDP. He continued in a vein worthy of a Master Investor editorial meeting:

The French are hooked on public spending. Like all addictions it doesn’t solve any of the problems it is meant to ease. And like all addictions it requires willing and courage to break the habit.

He revealed that the budget deficit this year (further to the previous Socialist government’s budget) would well above the three percent limit supposedly required by the EU Stability Pact.

Then he set three key targets. The first is that the deficit must be brought below three percent of GDP in the current fiscal year – that means immediate spending cuts of more than €4 billion. The second was that state spending would be cut by three percent over five years. The third was that the tax burden would be cut by one percent over the next five years (including the target reduction of corporation tax to 25 percent).

Jean-Luc Mélenchon, the far-left presidential candidate who is now an MP for Bouches-du-Rhône, was not impressed. He described President Macron’s Versailles address as “overblown Bonapartism, bleating Europeanism…and deadly boring”. Mélenchon is the French Jeremy Corbyn (or vice versa) – both idolise Venezuela’s Hugo Chavez and believe that all pro-market reforms are inimical to workers’ rights. He is already scheduled to lead a mass demonstration in Paris on 23 September against Macron’s coup d’état.

Lunch with the Trumps

A week or so later, on Bastille Day, the dazzling young President succeeded in charming his American counterpart over lunch up the Eiffel Tower. The Donald was in Paris as the guest of honour for the military parade that marks France’s national day. By the end of his whirlwind visit to the City of Light, a bromance seemed to have blossomed between the two big-ego Presidents. Mr Trump even opened the door to changing his mind on binning the Paris Accord.

There is a lesson to be learnt here on the other side of the Channel. While the British tie themselves in knots over the “morality” of according Mr Trump a state visit – while Speaker Bercow huffs and puffs and Mayor Khan gets into Twitter wars with the 45th President – the French just get on with it. Mr Trump is even more lowly esteemed in France than he is in Britain; but the French understand the unsentimental necessity for diplomacy. Whoever said the British are pragmatic and the French are doctrinaire? It often doesn’t look that way from Paris.

The Emperor and the Army

It came as a surprise that the first spending cuts were wielded on the Defence Department just after Bastille Day. €850 million of cuts were announced in its annual budget. The head of the army, five-star General Pierre de Villiers, a career officer who served in the Balkans in the 1990s and more recently headed the EU’s military training mission in Mali, resigned histrionically on 18 July. Then he posted on Facebook to the effect that he could no longer “guarantee the protection of France”. This broke a long-standing taboo that military men do not comment on public affairs in France (De Gaulle notwithstanding).

The Emperor was not amused. He said the General should “respect the chain of command and keep his opinions to himself”. But Jacques Bridey, chairman of the defence committee of the National Assembly, said the cuts would damage morale at a time of huge challenges. And there were mutterings against the President amongst the top brass. One general even compared Emmanuel Macron to Turkey’s Recep Tayyip Erdoğan. This is not how Napoléon was regarded by La Grande Armée. But then Emmanuel Macron, a technocrat, is the first French president never to have served in the military.

Le cordon sanitaire

President Macron has entrusted his Prime Minister, Monsieur Philippe (a conservative), with economic policy and his Interior Minister, Monsieur Collomb (a Socialist) with the management of the thorny problem of immigration. In so doing he has distanced himself from two powder kegs that could explode at any time in their owners’ faces.

If there are reasons for optimism on the economy (see below) the problem of the flow of migrants into France may be more intractable. The Jungle in Calais may have been closed but the city is still subject to roaming gangs of migrants – overwhelmingly young males from Afghanistan, Iraq and East Africa. What is less well known in the UK is how whole stretches of the road network on the outskirts of Paris have been colonised by bidonvilles (shanty towns) of plywood and cardboard, occupied by migrants. They are a shocking sight: so incongruent with one of the world’s most sophisticated cities – though one sympathises with their inhabitants who have just been ignored by the French state.

Labour reforms, it is suggested, will be pushed through by decree during the summer recess without parliamentary debate. Prospectively, 120,000 civil servants will be let go and French companies will be accorded more flexibility on working hours and pay rates. It will be after la rentrée in September that they start to take effect. France’s second biggest union, the CGT, has already called for strikes and protests in opposition to any labour reforms.

The model for Macron’s labour market reforms is what Chancellor Gerhard Schröder accomplished in Germany in 2003. Nowadays, people forget that the Sick Man of Europe in the late 1990s was Germany. German economists look back at those reforms as a turning point. But they took years to yield fruit. And Macron will know that Schröder paid a high price: he lost the German elections of 2005.

A question of opinion

On 24 July it was reported that the President’s popularity had slumped, with most voters unhappy about his proposed and implied reforms. The proportion of French people satisfied with his leadership has fallen from 64 percent in June to 54 percent in late July.

Many respondents attested to the President’s authoritarianism and obsession with his public image. As many as half of Monsieur Macron’s twenty million plus votes in the second round of the presidential election on 7 May this year came from people who, while not supporting his programme, just wanted to stop Le Pen. The summer of love, it seems, is already over; and an autumn of strife awaits.

Reasons to be cheerful

That said there is a mood of optimism abroad in France’s business community. The French business magazine Capital this month sees signs of vibrant recovery. Household and business confidence are at an all-time high – partly due to the Macron effect and partly because the economy was already in an upturn. Fewer young people are emigrating and inward investment is up. Unemployment dipped below 10 percent in April for the first time since 2012.

As an investment destination France offers outstanding infrastructure – superb trains and motorways that are a pleasure to drive on – and a highly educated workforce which sustains amongst the highest levels of productivity in the world. It has an enviable pack of world-class companies which I wrote about in the May edition of the Master Investor magazine.

There is also a sense that France is becoming a – possibly the – global leader in green energy (about which I seem to have been writing a lot recently). Who has just won a mega-contract to build the final stage of the largest solar array in the world in Dubai? EDF (EPA:EDF). Who has just completed the world’s largest hydro-electric power plant in the world in Jirau, Brazil? Engie SA (EPA:ENGI). Who is behind the Solar Star giant PV array in California? Total SA (EPA:FP) (via its US subsidiary SolarPower). Which automotive player manufactured the most electric cars in Europe last year? Renault SA (EPA:RNO) – another reason why Macron set a date of 2040 for the end of petrol and diesel cars (swiftly followed by Britain).

Hitherto, I’ve been sceptical about the efficacy of biofuels. But I’ve recently received a report on French companies active in this field (several of which are listed on the Paris bourse, and whose share prices have done very nicely) which may have swayed me. The French are a people with their hearts in the countryside yet who love science and technology – it was inevitable they would go for biofuels. I’ll share the names of some amazing players shortly.

Then there is technology. Earlier this month the President inaugurated a massive 34,000 square metre complex housed in a former train station which has been dubbed the “start-up hub”. President Macron has said that he wants France to be le leader de hyper-innovation (no translation required, I think).

Four French start-ups that you will hear about soon

Energysquare will commercialise this autumn a new way to charge your mobile without the need for cables. The product is a charging pad on which you can lay up to six phones at the same time. Devices are charged by conduction so there is no risk of electric shock. The product will retail in France in the autumn for €89.

Icare Technolgies has developed a ring that wearers can use as a credit card, an identification device, a travel ticket or indeed as a set of house or car keys. It has already formed a strategic alliance with MasterCard. Only the designated user can activate the ring thanks to proprietary biometric recognition technology. The product will be available in France from the spring of next year.

HAP2U enables screen manufacturers to offer tactility to images on smartphone screens. It achieves this by vibration (not electrostatic discharge). This offers the possibility that visually-impaired readers of braille could be able to read smartphone screens. Alternately, pilots on aircraft could operate touch screens in the dark by recognising the feel of different switches (not ideal, I grant you). Apple and Samsung have already developed similar systems based on electrostatic stimulation.

Plume Labs is a young Parisian start-up which raised €4 million in capital last year. They have developed a censor weighing 60 grams which connects to a smart phone. The device can analyse air quality in great detail and identify any potential toxins. The read-out is displayed on your smartphone: at dangerous levels the screen will flash red. Such data can be transmitted directly to weather stations etc. The device will be available from spring 2018.

What does President Macron really want?

In February, on a campaign visit to London (where about 300,000 French voters live) he told adoring crowds that he wanted to “get talented people in research and lots of fields working here [the UK] to come to France… I want banks, technology companies, researchers, academics and so on”. He later said that he wanted France “to think like a start-up” and to incubate the new unicorns of biotechnology, fintech and AI.

In other words, while his people say he wants France to catch up with Germany and to reanimate the Franco-German leadership of a more closely federalist EU, the strategy is for France to become more like the UK. (Though without the rain and mist, the obesity, the stressed public services, the traffic jams and the creaking state finances. Nor the incessant inane bickering that passes for political discourse on the north side of the Channel).

Watch out, Britannia, the Emperor wants to steal your robes!


In Greek mythology those who sought to purge a city of miasma risked catastrophe. Like in the fairy tale, the beautiful princess has at last awoken from her slumber on being kissed by a handsome prince. But do not assume that she will live happily ever after.

Comments (2)

  • Jim Fowler says:

    Those 300,000 French ex-pats in London would do well upon their return by teaching English in their spare time as the French language is only useful to the French and those washed up upon the shores of France.

  • Lawman says:

    How does this affect the position of small investors? Are (some) French companies a buy?

    I can not find a dedicated Investment Trust or Fund investing in France only. What about a France index tracker such as ISFR?

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