Macron’s Reform Dilemma: Progress or Popularity

Dr Oliver Hartwich
21 March, 2023

“We all know what needs to be done,” former President of the European Commission Jean-Claude Juncker once said. “We just don’t know how to get re-elected after we have done it.”

A need for reform can be clear, but implementing such reform can still be a politically Herculean task that risks backfiring on the reformer.

Just ask Gerhard Schröder, the former German Chancellor who in effect sacrificed his job over tough but necessary labour market reforms (that was before he became a Russian lobbyist). Or Margaret Thatcher, who saved a bankrupt Britain only to become the most divisive figure in British politics.

With French President Emmanuel Macron it is a similar story. He may be the first French politician in decades to implement meaningful economic reforms, restore France’s competitiveness and lead his country onto a better path.

But in doing so, he has also become unpopular and divisive – not least because of his authoritarian and non-consultative leadership style.

At least as a French President in his second term, he need not worry about re-election like Juncker had to. There is no constitutional possibility of a third term.

Still, Macron will need to worry about his remaining four years in office. And after last week’s political turmoil in France, Macron’s economic reform battle has reached a new peak.

The holy grail of French economic reform has always been the modernisation of France’s archaic pension system. It is one of Europe’s most generous pension systems, with a retirement age far below that of its neighbours. However, with demographic change as much a reality for France as it is for other Western nations, it has always been obvious that France cannot continue to finance its generous pension forever.

French pension reform battles are legendary. The government of Prime Minister Alain Juppé attempted to implement welfare and pension reforms in 1995, leading to a series of strikes that crippled the country. No wonder, because among Juppé’s proposals were truly radical items such as increasing the retirement age for French rail workers. From age 55, believe it or not.

After Juppé, Presidents Nicolas Sarkozy and François Hollande both tried and failed to make meaningful change to pensions. Now it is Macron’s turn to do what generations of top politicians before him could not. That is to consolidate the various pension schemes, reduce pension privileges for public sector workers, and finally increase the general retirement age from 62 to a still leisurely 64.

The public’s response to Macron’s plans has been strikes and protests – just as Juppe faced 28 years ago.

Macron’s approval ratings have also taken a hit, hovering around 30 percent, reflecting the general dissatisfaction with his handling of the pension crisis.

The main political problem for Macron is that, though he won the presidency again last year, he failed to defend his majority in parliament, where Prime Minister Élisabeth Borne now leads a minority government.

And so, in an attempt to push through his reforms, Macron has resorted to a controversial tool known as Article 49.3 of the French Constitution. This allows the government to bypass parliament and pass legislation without a vote.

Macron’s gamble is a bold move. Opposition parties have already announced a no-confidence vote, which risks triggering a new election. Should the government lose the vote, France would go to the polls. But there are turbulent times ahead, even if Borne survives.

The problem is that Macron’s political management has left much to be desired. His administration’s attempt to sell the reforms as necessary and beneficial to the wider population has been lacklustre. The president has often appeared more focused on pushing through his agenda than on building a solid foundation of support for his reforms.

Tellingly, not even employer associations or reform-minded trade unions support the hastily introduced pension reform plan. This is primarily because they, like everybody else, were not properly consulted.In this way, Macron has destabilised his own chances of implementing any future reforms. He is unpopular, he does not build support around his policies, and so he risks becoming an ineffective leader for the remaining four years of his term.

That is a shame because, so far, Macron has been a significant – and effective – reformer. Indeed, the most effective one France has had for generations.

As the minister of the economy under Hollande in 2016, Macron championed liberalising labour market reforms alongside then-Labour Minister Myriam El Khomri.

Then, as president from 2017, he introduced labour-market, education, and corporate tax reforms. He streamlined labour laws to increase flexibility. He eased hiring and firing regulations while limiting the financial risk for companies in cases of wrongful dismissal.

His wealth tax reforms exempted financial assets and investments from wealth taxation. In parallel, Macron also reduced the corporate tax rate from 33 percent to 25 percent. Both tax changes were meant to attract and incentivise investment, particularly from abroad.

Macron’s policies have resulted in a more dynamic labour market, with employment rising faster in France than in Germany. Business start-ups have also flourished, indicating France’s newfound edge over its neighbour across the Rhine.

The French economy has made significant strides under Macron’s stewardship. But much of this progress relies on the stability and continuity of the reforms already implemented. A reversal of these policies could quickly unravel the economic gains France has made.

Macron no doubt knows this, so the prospect of political instability will worry him. He urgently needs to find a way to reconcile his reform agenda with the need for political consensus and maintaining (well, restoring) social cohesion.

Macron thus finds himself grappling with the same challenge that tested Juncker, Schröder, and Thatcher: implementing bold reforms while maintaining political standing.

Macron does not need to be re-elected. But if he cares about his place in the history books, he better up his political game to match his economic reform agenda.

To read the full article on the Newsroom website, click here.

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