24/06/2019 – Country Focus / France

The New French Revolution

It’s been two years since Emmanuel Macron took charge of Europe’s third-largest economy, to become the youngest president in French history. Hailed by many as a centrist saviour, Macron vowed to revive the economy, reform the labour market and unite the French people – but then along came the gilets jaunes. Gemma Kent explores the key issues likely to shape the second half of the Macron presidency.

 

On 25th April Emmanuel Macron delivered a long-awaited response to France’s ‘gilets jaunes’ – the grassroots citizens’ protest movement that has arguably created the first major crisis of his presidency. What started out last November as protests over fuel price rises quickly escalated into a national (and sometimes violent) uprising against economic inequality in France, with demonstrators donning yellow high-visibility vests for their ubiquity and association with working-class industries.

 

Keen to launch the second half of his presidency after widespread rebellion and a three-month-long “Great National Debate”, Mr Macron gave a speech to the nation in which he acknowledged a “lack of trust” in the establishment and the “fair demands” at the core of the gilets jaunes movement, while insisting that order must nonetheless return. With a view to quietening the discontent, the President announced plans for €5bn (US$5.6bn) worth of income tax cuts for the low-paid, together with higher pensions, a more decentralised administration and a reform of the civil service. 

 

An anti-climax

 

For many of the President’s critics this was a case of too little too late, with gilets jaunes members saying their movement will continue its quest for social justice. “France is, politically and socially, in a very fragile state,” François Heisbourg, leading analyst from the International Institute for Strategic Studies, told The Guardian in April.

 

On the other hand, analysts are sceptical of Mr Macron’s ability to fully pay for his latest round of concessions, while the French employers’ federation Medef has denounced the President’s plans to help subsidise personal income tax cuts by increasing corporate tax bills as “totally unacceptable…when French companies already have the highest rate of obligatory charges to pay among the countries of the OECD.”

 

The polarised responses to these latest reforms shine a spotlight on France’s economic predicament as President Macron attempts to appease the gilets jaunes while also making good on his pledges to slash public spending, reduce taxes and decrease the budget shortfall. Indeed, government debt levels remain high in spite of efforts to curb the deficit, while the latest Global Competitiveness Index published by the World Economic Forum highlights problematic factors for doing business in France that include restrictive labour regulations and inefficient government bureaucracy.

 

Breaking the jobless trend

 

France is less competitive than many of its neighbours – largely as a result of its labour costs, which, at €36 (US$40) per hour are the sixth highest in Europe, according to Eurostat. This makes it relatively difficult for French firms to hire, and goes some way to explaining the high rate of unemployment the country has been facing for the past three decades. The INSEE statistics institute reported in February that the jobless rate fell to 8.8 per cent in the last three months of 2018 – its lowest level since 2009, but a frustratingly slow decline for Mr Macron, who was elected on a pledge to bring unemployment down to seven per cent by 2022.

 

The President addressed the rigidity of the labour market shortly after his election by introducing an overhaul that would make it easier to both hire and fire, which was followed last year by the announcement of plans to spend €15bn (US$16.8bn) on providing job training over the next five years, while increasing sanctions against those who fail to look properly for work by reforming unemployment benefits. “We want to beat mass unemployment, we’re not making cosmetic changes but lasting changes,” Labour Minister Muriel Penicaud told a French radio station.

 

Pooling strengths, driving investment 

 

The Macron government is also pushing for lasting change with a new industrial policy, and earlier this year banded together with Germany to launch a joint manifesto that calls for Europe to “pool its strengths and be more united than ever.” Published shortly after a proposed Siemens-Alstom merger was blocked by the European Commission, which dismissed the companies’ argument that a tie-up was necessary to compete with larger state-backed rivals from China, the Franco-German plan is built around three pillars, including the suggested revision of EU competition rules to ensure European companies are capable of competing on the global stage.

 

As well as calling for increased economic protection against countries outside the EU, the joint policy also outlines both countries’ plans for enhanced investment in innovation to lead the creation, development and production of new technologies. To that end, France and Germany recently launched an industrial consortium led by Saft (a Total subsidiary) and automotive giant PSA aimed at capitalising on strong growth in the electric vehicle (EV) market. The partnership is set to invest at least €5bn (US$5.6bn) in the production of EV batteries, starting with a first plant in France then a second in Germany. “Germany and France created the automobile,” said French finance minister Bruno Le Maire, adding that the deal would allow Europe to remain competitive against the US and China.

 

Artificial Intelligence (AI) is intended to be a further field of bilateral collaboration, in which a Franco-German research and innovation network will focus on transferring its findings to businesses, particularly in the areas of health, transport and robotics. This is in addition to President Macron’s 2018 announcement of a €1.5bn (US$1.67bn) investment over four years, aimed at making France one of the leaders of the AI sector. “We have the means, and we will create the conditions,” said Mr Macron.

 

If the President’s reforms bear fruit, France should certainly find itself in a strong position; the economy ended 2018 with higher economic growth than expected in spite of the violent protests. But whether the ongoing public unrest will irreparably taint the Macron presidency – and France’s nascent economic recovery – remains to be seen.

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