Do Not Celebrate Macron’s Victory—Yet

Romain Keppene co-authored this article. He is a graduate student at the École des Haute Études Commerciales (HEC) in Paris, France. He formerly worked with the European Delegation to the United States in Washington, DC.

European leaders across the continent celebrated Emmanuel Macron’s victory over Marine Le Pen in this month’s French presidential election. It is understandable why many European leaders are optimistic about Macron’s promise to stimulate the French economy and reform economic governance in the eurozone. However, given Macron’s uphill battle—both at home and abroad—these celebrations might prove to be premature.

Image courtesy Pablo Tupin-Noriega, © 2015.

There are indeed strong reasons to celebrate Macron’s election victory. In his campaign, Macron promised to vitalize the French economy, which has barely recovered from the 2007-08 financial crisis. France’s per capita income reached its pre-crisis levels only in 2016, whereas the United Kingdom reached that level in 2015 and Germany in 2010. France’s weak economic growth and slow recovery have shattered its labor market: France has an unemployment rate 10.0 percent, twice that of Germany, and youth unemployment rate of 23.7 percent, more than three times that of Germany. These measures easily place France among the worst performing European countries.

To stay true on his promise to revitalize the French economy, Macron has outlined his plans to invest €50 billion on education, energy, the environment, and agriculture. His plans also include relaxing French labor laws, creating an employment insurance program for all job seekers, and cutting corporate taxes. In addition, Macron plans on reducing France’s government spending and national debt, both of which are among the highest in Europe. While these plans are well-intentioned, several key challenges threaten Macron’s plans.

The French electorate is intensely polarized, which does not bode well for Macron’s reforms. While Macron won 66 percent of the votes in the second round of the French election, more than half of the French electorate voted in the first round for either the extreme left or extreme right candidates. Furthermore, Macron’s newly formed En Marche party does not enjoy the support in the parliament that its more established counterparts enjoy. As a result, it is unlikely that En Marche will gain a majority in the upcoming parliamentary election in June.

If Macron indeed fails to form a majority, his party will have to a form a coalition—most likely with the Républicans and the Socialists. Due to the Républican and Socialist lack of interest in reforms—particularly in the labor market—a potential coalition might limit Macron’s ability to implement his aforementioned economic plans. This is likely to be especially problematic if the coalition agrees on projects that increase spending, such as the creation of a universal employment insurance for all job seekers, without agreeing on cost-cutting measures, such as Macron’s plan to reduce 120,000 government jobs in the next five years. Increasing government spending without adequate cost-cutting measures would surely increase the national debt of France, which is one of the most heavily indebted Eurozone countries.

Macron is also likely to face significant international challenges, especially if his economic policies lead to a further deterioration in France’s public finances. Over the recent years, Germany—the European Union’s de facto economic leader and France’s most important E.U. partner—has become increasingly frustrated with France, accusing the country of a lack of fiscal discipline. Germany demands that France pursue necessary reforms to improve its economy and reduce its national debt. Consequently, if Macron’s economic policies increase France’s national debt, it will not be received well in Berlin and Brussels. Thus Macron faces the tough job of pleasing the French public and his political allies by increasing spending and simultaneously limiting deficit to please his European partners.

In addition to France’s public finances, the eurozone’s trade surplus also poses a challenge for Macron’s economic plans. The eurozone trade surplus is largely a result of the growing trade surplus in Germany, which now has the largest trade surplus in the world, and declining deficits in other E.U. countries. By pushing up the value of the euro and reducing the demand for exports, the surplus compounds deflationary pressure in France and the rest of the eurozone. This deflationary pressure is likely to limit the extent to which Macron succeeds at boosting the French economy through his €50 billion stimulus package.

In light of the eurozone’s trade surplus and the challenges that it poses to the French and southern E.U. economies, it is understandable why Macron wants to reform economic governance in the eurozone. In particular, Macron is advocating a European minister of finance and a banking union—ideas that are poorly received in Berlin, as evidenced by Angela Merkel’s lukewarm response to Macron’s proposals. While Italy and southern E.U. nations are likely to support Macron’s eurozone reforms, without Berlin’s support, Macron’s plans for eurozone reforms are unlikely to materialize.

Given the choice between Macron’s reformist and internationally oriented economic policies and Le Pen’s protectionist policies, European leaders are right to celebrate Macron’s victory. However, in light of key challenges that lie ahead, notably France’s parliamentary election and Germany’s reluctance towards eurozone reforms, it is too early to say if Macron will be able to deliver on his proposed economic reforms. Until then, European economic policy leaders would be well-advised to delay their celebrations.


Ryan Nabil

Ryan is a global macroeconomy researcher. His articles have appeared in the Washington Post, US News & World Report, and the National Review. Ryan is a graduate of Kenyon College and Oxford University.
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