France’s Hollande Casts Fate With Ex-Banker Macron
As the French president shifts away from tax-the-rich policies, economy minister Emmanuel Macron vows to be ‘more confrontational’
French Economy Minister Emmanuel Macron got an earful in January from U.S. technology and retail executives as they lectured him in a meeting at the Venetian hotel in Las Vegas about France’s inhospitable business reputation.
They complained that the government meddles too much, the labor market is too rule-bound and corporate taxes are onerous, including a two-year 75% tax on salaries of more than €1 million ($1.1 million) imposed by President François Hollande after his election in 2012.
The 37-year-old Mr. Macron, a former investment banker who became France’s top economic official last August, folded his hands prayer-like and then responded with the message he had flown from Paris to deliver: “I agree with everything.”
He added: “I think the 75% tax was a big mistake.”
Mr. Macron’s dig at his own boss was no slip of the tongue. For years, he prodded Mr. Hollande and his ruling Socialist Party to carry out a long-delayed modernization of France’s economy, the eurozone’s second largest. Now the French president is staking his government’s survival on Mr. Macron’s agenda.
In February, Mr. Hollande pushed economic overhauls designed by Mr. Macron—and known as the “Macron Law”—past the lower house of Parliament. Opposition from the president’s own party was so fierce that Mr. Hollande invoked special constitutional powers to bypass the National Assembly, the first use of that maneuver in nearly a decade.
Angry lawmakers retaliated by subjecting Mr. Hollande’s government to a no-confidence vote. While the vote failed, it underscored the divisions laid bare by the French president’s decision to shed the consensus-building style that swept him into office but made him a sluggish economic reformer.
Under growing pressure
France is under growing pressure from officials in Brussels and Berlin to make structural changes to the sclerotic labor rules and red tape that have contributed to making the French economy a millstone for eurozone growth. In last year’s fourth quarter, gross domestic product grew just 0.1% in France, compared with 0.7% in Germany.
By backing Mr. Macron, Mr. Hollande is turning away from his past as an apparatchik who focused on appeasing the Socialist Party’s left with tax-the-rich policies and employment programs that stretched France’s finances, such as job subsidies for more than 150,000 young people.
It is increasingly clear that the French leader has decided to cast his political fate with European governments, led by Germany, that view entitlements and job protection as causes of economic inertia.
“I’m happy,” German Chancellor Angela Merkel said while standing beside Mr. Hollande in Paris three days after he strong-armed the French parliament. “It shows France has the ability to act.” A close aide to Mr. Hollande said he wasn’t available to comment for this article.
European Union officials want him to go much further, by relaxing labor regulations that restrict companies from firing workers and hiring new blood. That puts Mr. Hollande on a collision course with his own party.
In interviews with The Wall Street Journal, Mr. Macron said he is planning to strengthen his namesake legislation in ways that are likely to widen the divide. For example, he wants to allow companies to sidestep rigid labor rules and negotiate directly with employees, a move that could tread on France’s hallowed 35-hour workweek.
“You have to be more confrontational,” he says. The Senate is likely to start reviewing the legislation in April.
Mr. Macron’s rise from behind-the-scenes campaign adviser to architect and public champion of Mr. Hollande’s shift has alarmed the Socialist Party’s rank and file. Mr. Macron has never held elected office and has shown disdain for the political horse-trading often needed to win over lawmakers.
Those facts have deepened his rift with backbenchers, who also cast Mr. Macron as an elitist out of touch with the working-class identity of French socialism. “Some part of him lacks the human touch,” says Jean-Marc Germain, a Socialist lawmaker.
The Macron Law “is devastating to our principles because it annihilates much of what we stand for as Socialists,” he adds.
Still, Mr. Macron has clearly won over the French socialist who matters most: Mr. Hollande. The bond took root years before he rose to power as president—and has persevered through the tumult in Parliament, says the aide to Mr. Hollande.
Mr. Macron is deft at cultivating admirers in high places, according to people who have mentored him over the years. He deployed those skills while nurturing a relationship with Mr. Hollande, 60, standing by the politician even when they disagreed privately. The reason: Mr. Macron believed the president would eventually come around.
“It’s sort of an implicit deal: If I disagree, to always tell him I disagree,” Mr. Macron recalls. “Sometimes we fought.”
Born to a family of medical doctors in the northern French town of Amiens, Mr. Macron met his future wife, Brigitte Trogneux, while he was in high school and she was his drama coach. He starred in a play organized by Ms. Trogneux, who is 20 years older than Mr. Macron, and they moved in together a couple of years later.
Mr. Macron gained entry to the halls of power after his acceptance into the École Nationale d’Administration, a highly selective school that counts numerous presidents among its alumni, including Mr. Hollande.
As one of the top graduates in 2004, Mr. Macron secured a coveted post inside the Inspection Générale Des Finances, an elite cadre of civil servants that audits government agencies and informally serves as the finishing school for France’s leadership class.
“The aristocracy of the aristocracy,” says Alain Minc, a prominent businessman. “It’s a power-broker system.”
While there, Mr. Macron made a point of introducing himself to the unit’s most prominent former inspectors, including Mr. Minc and former Prime Minister Michel Rocard. Mr. Macron talked about politics with Mr. Minc and derivatives with Mr. Rocard. “He’s a good teacher,” Mr. Rocard recalls.
Mr. Hollande met Mr. Macron at a 2008 dinner hosted by Jacques Attali, a high-level aide to President François Mitterrand in the 1980s. Mr. Attali had taken Mr. Macron under his wing, recruiting him to coordinate a special commission created by then-President Nicolas Sarkozy to recommend pro-business reforms.
Over dinner, Mr. Hollande asked Mr. Macron if he wanted to run for office. Mr. Macron wasn’t sure. He didn’t want to become beholden to machine politics. Instead, he volunteered to become a behind-the-scenes adviser.
At the time, Mr. Hollande’s political fortunes were waning. The Socialist Party passed him over by nominating Ségolène Royal to challenge Mr. Sarkozy in 2007. After she lost, party leaders set their sights on Dominique Strauss-Kahn , then managing director of the International Monetary Fund.
Mr. Macron stood by Mr. Hollande, which cemented their ties. “That is the core of his personal relation with Hollande,” says Mr. Minc.
In 2011, Mr. Strauss-Kahn’s candidacy collapsed amid a sex scandal. Mr. Hollande was suddenly a presidential contender, and he wanted advice on how to shake up France’s economy.
Mr. Macron convened top economists at La Rotonde, his favorite Parisian brasserie, and eventually hashed out a 200-page economic plan for Mr. Hollande. In a departure from Socialist Party ideology, the confidential document put forth a slate of “pro-industry” reforms, Mr. Macron recalls.
“He speaks plainly. No taboos,” says Jean Pisani-Ferry, an economist who attended the sessions. The aide to Mr. Hollande says the document laid the foundation for his pro-business turn.
Mr. Macron juggled his work for Mr. Hollande’s campaign with his duties as an investment banker for Rothschild & Cie. Leveraging connections made through Mr. Attali, Mr. Macron helped arrange Nestlé SA’s $11.8 billion purchase of Pfizer Inc. ’s baby-food business.
The takeover made Mr. Macron wealthy and taught him how to curry favor in a risk-averse corporate culture. “You’re sort of a prostitute,” he says. “Seduction is the job.”
Meanwhile, Mr. Hollande faced pressure in a tight election campaign to reassure his Socialist Party base. In January 2012, he delivered a barnstorming speech that warned of a “nameless, faceless” menace to France.
“This enemy is the world of finance,” Mr. Hollande told a cheering crowd. Behind the scenes, he dispatched Mr. Macron to London to reassure investors that the presidential candidate wasn’t a hard-liner.
The two men clashed when Mr. Hollande vowed to levy the 75% tax on salaries of more than one million euros. Mr. Macron fired off an email to Mr. Hollande, hoping to steer him to a softer stance: “This is Cuba without the sun!”
After his election, lawmakers approved the tax, and Mr. Hollande stocked his cabinet with left-wing Socialist Party members. Arnaud Montebourg, who regarded government as a guardian against corporate takeovers by foreigners, was named France’s industry minister.
But in a sign of Mr. Hollande’s determination to balance competing interests, the new president hired Mr. Macron as his deputy chief of staff and primary conduit to the business world.
Under pressure from the European Union to balance public finances, Mr. Hollande announced €7.2 billion in additional taxes on companies and wealthy people—and then raised the tax bill by €20 billion.
A business rebellion
French business owners rebelled. They protested the plan publicly, and layoffs pushed France’s unemployment rate above 10%. Mr. Macron urged Mr. Hollande to change tack, and the president unveiled corporate tax credits of €20 billion in November 2012. Mr. Macron later convinced Mr. Hollande to double the tax breaks despite criticism from the left.
Mr. Macron also confronted Mr. Montebourg over his attempt to engineer a merger between French engineering firm Alstom SA and German rival Siemens AG . Mr. Montebourg wanted to stop U.S.-based General Electric Co. from buying Alstom’s core turbine business.
In a June 2013 meeting at the Élysée Palace, Mr. Macron told Mr. Montebourg, who had been promoted to economy minister: “You can block a marriage, but you cannot force a marriage.”
Mr. Montebourg relented. The next day, the French government backed GE’s proposed $17 billion acquisition. A spokesman for Mr. Montebourg didn’t make him available to comment.
Despite Mr. Macron’s willingness to challenge heavyweights of the Socialist Party, he left Mr. Hollande’s administration to launch an Internet startup. His plans changed when the French president telephoned in August 2014 with an urgent offer.
Mr. Hollande fired Mr. Montebourg and two other ministers for opposing cuts to government spending. It was a stunning rebuke of the rebellious left. Mr. Hollande promised the economic minister’s job to Mr. Macron if he wanted it.
Mr. Macron said he wanted a clear mandate from Mr. Hollande to overhaul the economy. Mr. Hollande replied: “You will be here to reform.” An hour later, Mr. Macron accepted the job.
January’s trip to the Consumer Electronics Show in Las Vegas showed how Mr. Macron is trying to win over leaders of companies with little or no presence in France because of its high taxes and work rules that make it hard to fire employees. He invited the executives to a follow-up dinner with Mr. Hollande this fall at the Louvre.
Back in Paris, Mr. Macron tried to soothe lawmakers who opposed proposed reforms ranging from looser Sunday restrictions on retail shops and easier layoff procedures to lower notary fees and faster court rulings on labor disputes.
Mr. Hollande tried to play down the conflict, saying the Macron Law was “not the law of the century.” Mr. Macron expected the changes to pass by a slim but reliable majority.
His mood soon changed. At 1 a.m. on Valentine’s Day, Mr. Macron met Socialist Party baron Benoît Hamon, who was fired as education minister in the shake-up that made Mr. Macron economy minister.
While the two men had drinks at the bar of the National Assembly, Mr. Hamon made a quid pro quo offer: Socialist Party lawmakers would support Mr. Macron if the legislation included a nationwide increase in pay rates for Sunday workers.
“I would have ensured there was a majority,” Mr. Hamon says. “I didn’t want to go to war.” The next day, Mr. Macron delivered his answer in a heated address to the lower house. “I’m sorry, but I’m not open to shallow compromises to justify a vote,” he told lawmakers.
To rescue the bill, Mr. Macron and French Prime Minister Manuel Valls decided to ask Mr. Hollande to summon cabinet members and seek authorization to use Article 49, which allows legislation to proceed to the Senate. “We are short of a majority,” Mr. Valls told the president.
Using the constitutional powers subjected Mr. Hollande to the no-confidence vote that could have brought down his government. Divisions among Mr. Hollande and his own party now run so deep that the government “may well struggle to pass any additional measures during the remainder of its mandate,” says Sarah Carlson, a senior analyst at Moody’s Investors Service.
Mr. Macron disagrees. He says the government feels freer to plow ahead with its economic-overhaul plan because it can go around the lower house if lawmakers refuse to compromise.
His newest ideas include giving companies and employees greater leeway to negotiate waivers on national rules for working hours and salaries. “My wish, my willingness is to go further with this law,” he says.