Economic Reform

For France, Change is Possible

French President Emmanuel Macron attends a meeting at the Elysee Palace in Paris
The newly elected French president looking confident in the Elysee Palace – as he should. Source: REUTERS/Julien de Rosa

French president Emmanuel Macron has a herculean task ahead of him – at least that’s the way most Germans see it. From here, reforming the French economic system appears to be an almost impossible challenge for the young president – even backed up by an absolute majority in the French National Assembly.

While that might be an exaggeration, it certainly won’t be easy for Mr. Macron. But the German view of France tends to be distorted by many a biased opinion. We instinctively tend to count France as belonging to the infamous Club Med of highly-indebted and economically stagnant southern EU member states, like Italy or even Greece. But the French economy is, in fact, considerably more like the German economy than those of its southern neighbors.

France has, for example, strong corporations, 18 of which alone are listed in the EURO STOXX 50 Index. Germany has only 15 in this leading euro zone blue-chip index. Moreover, France has a functioning administration, an outstanding infrastructure, and a very well educated population – at least in academic fields. All of these count as decisive prerequisites for future growth.

It is true, however, that the potential of the French economy is currently restricted by an unwieldy and costly public sector, as well as a surfeit of regulation, particularly in the labor market. But that also means that Mr. Macron simply has to dial back some of the French bureaucracy in order to infuse the economy with new vigor.

What Mr. Macron needs to do most of all, and very quickly, is get more young people working.

In contrast to former German chancellor Gerhard Schröder, who had to push through his Agenda 2010 in the middle of a period of economic stagnation, Mr. Macron has an economic upswing as a tailwind. The club of industrialized countries, the OECD, is reckoning with 1.3 percent economic growth in France for 2017, and it’s expected to increase to 1.5 percent in 2018. The OECD predicts that for the first time in a long time, France has good chances of complying with the EU deficit limit of a maximum of three percent in 2017. In such a favorable economic situation, reforms seem less painful than in a recession, with growth masking possible declines in prosperity in individual segments of the population.

What Mr. Macron needs to do most of all, and very quickly, is get more young people working. Preferably with a mixture of training for low-skilled workers and a less rigid labor law, which has often caused companies to shy away from hiring new workers. Also, the French government must learn to make do with less money, plain and simple.

Such decisions won’t have the French unions breaking out in cheers. But they are possible to push through. Not least of all thanks to the French voters, who are sick of being ridiculed as the sick man of Europe.

 

To contact the author: rickens@handelsblatt.com 

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