France is unable to confront its economic problems

France suffers from an unsustainable economic model, and President Emmanuel Macron’s government in Paris seems unable to even discuss the matter, let alone take any action on it.

It may be difficult, in light of France’s current difficulties, to remember, but not long ago, the country was taking steps to alleviate its economic and financial problems, but unfortunately, that moment has passed, and the outlook therefore looks bleak.

When Macron took office as president of France in 2018, he brought with him an agenda for necessary economic and financial reform. His first steps included changes to labor and tax law.

He promised that once these reforms allow for a healthier economy, he would take additional steps to put the country’s finances in order, putting the country’s political economy on more solid footing. At the time, he seemed to have a mandate to pursue these goals.

Historical reforms

Immediately after taking office, Macron implemented several historic reforms. To encourage innovation and investment, and thus revive the economy, his government replaced a burdensome and complex tax code with a flat 30% tax on investment income. He abolished the special French tax on non-real estate wealth.

On the labor front, new laws have given small and medium-sized companies greater flexibility by allowing them to negotiate with local union leaders instead of national ones. They have also created job opportunities by giving companies greater freedom to make hiring and firing decisions.

Because the previous law made it almost impossible for companies to fire employees, even for good reason, French employers have long been reluctant to hire people full-time.

Rather than risk keeping undesirable employees on the payroll, company managers ignored expansion opportunities or increasingly relied on short-term labor contracts to meet their labor needs, a practice that did not help train workers and thus hindered improved productivity.

Growth acceleration

Despite mass protests from the left, unions and experienced workers, the reforms were passed and appeared to benefit the French economy. Economic growth accelerated from 0.8% in 2016 to 2% in 2019, following the implementation of these reforms.

The employment situation in the country has also improved, as the overall unemployment rate decreased from 10% of the workforce in 2016 to about 7.2% before the “Covid-19” pandemic disrupted the economy. The youth unemployment rate fell from its highest level of 25% before the reforms took effect to about 20% in 2019. Labor productivity growth accelerated from an average of 0.6% per year during the five years before the reforms to 0.8% per year in the three years that followed.

These numbers are not enviable in some economies, but they were extremely important in the French context.

Macron explained at the time that this round of reforms was only the beginning. If France wants to continue the state’s generous support for the well-being of its citizens, it will need more pro-growth changes, in addition to fiscal reforms, in order to control government spending. Without these changes, the political and economic model was unsustainable.

Macron was not as frank as the newly elected German Chancellor, Friedrich Merz, when he said that social welfare in Germany was “no longer sustainable.” However, he clearly believed that France was in the same boat, and this motivated Macron.

Loss of influence

But French policy has changed, and it is no longer able to produce reforms or move at all. Macron’s mandate, no longer as strong as it once seemed, has lost almost all its influence in the National Assembly (parliament). On the one hand, in the Assembly, the left, which has fought Macron’s reforms from the beginning, has great influence, but on the other hand, Marine Le Pen’s National Rally, although more civilized than her father’s fanatical party, seems to prefer to strengthen its strong rebellion with anti-EU and anti-immigrant positions rather than thinking about economic or financial reforms.

In two years, Macron has appointed five prime ministers and had to postpone a modest reform that would have slowed French government spending slightly by gradually raising the French retirement age from 62 to 64, which is still below the European average of 65.

Given the makeup of the National Assembly, it is highly doubtful that France will be able to do anything to address its fiscal or economic vulnerabilities any time soon, especially since new commitments on defense spending will only exacerbate existing fiscal and economic pressures. «National Interest»

It’s frustrating

Observers of French affairs considered that things must get worse in France before they get better, but for President Emmanuel Macron, the matter is frustrating, as he was forced to watch his economic reforms, which were described as “bold,” go in vain, and he was forced to see his ambitions for “a more important and stronger France” fade as well.

• Macron immediately implemented several historic reforms that revived the country’s economy.

• French policy has changed, and it is no longer able to produce reforms or move at all.