Macron’s costly U-turn tests EU’s Italy resolve
The reversal will carry a price for France’s public finances and the rest of the EU
A recently elected leader of a top three eurozone economy is promising billions in tax giveaways and wage hikes to quell popular anger against years of austerity. It's not Italy’s populists but France’s Emmanuel Macron. ( FT)
After weeks of rioting gilets jaunes (yellow vests) protesters, the French president has announced an estimated €10bn giveaway — including a minimum wage hike next year and tax breaks for employers.
It is an abrupt and embarrassing reversal from a president who came to office determined to fix France’s troublesome public finances and revamp the country’s rigid labour markets to win plaudits in Brussels and Berlin.
The U-turn will carry a price — for Mr Macron’s personal fortunes, France’s public finances, and potentially the rest of the EU. ( FT)
First the numbers: France’s deficit next year is due to swell from a projected 2.8 per cent of GDP (already uncomfortably close to the EU’s ceiling) to a rules-busting 3.4 per cent. That will make it the largest deficit in the EU in 2019 along with Romania (chart above).
Whether the president’s pledges are enough to placate public anger is an open question. But Brussels’ budgetary police are already under pressure to respond to Macron’s splurge after confronting Italy’s populist government earlier this month over its rising deficit.
The European Commission on Tuesday said it won’t make any comment on France’s draft budget until the spring, when it assesses national spending plans and offers policy guidance.
But Matteo Salvini and his allies are already delighting in the sorry state of Macronomics. Claudio Borghia, a Lega MP and Eurosceptic economist, is tweeting out pictures of rising French borrowing costs to ram home the point to Brussels that rule breakers should be treated without bias.
Even before this week, Italian and EU officials were tentatively hopeful that Rome’s stand-off over its projected 2.9 per cent budget deficit could be resolved. France’s troubles are now likely to embolden those pushing for leniency inside the commission.
Italian prime minister Giuseppe Conte meets Jean-Claude Juncker in Brussels on Wednesday with expectations that Rome could propose shrinking its deficit by a few percentage points in return for “freezing” its excessive deficit procedure, one Italian official told the Brussels Briefing.
Lastly, whatever the fallout for Rome, there’s also the hit to Macron’s reformist credentials in the eyes of his EU peers. The president sought to win favour (and concessions) from Angela Merkel by selling himself as the only man who could fix France. But with the concessions from Germany on eurozone reform looking modest at best and his domestic position looking perilous, Macron opted to change tack and throw budgetary caution to the wind.