Paris Revels in Change—and London’s Travails
Era of Macron Draws Optimism from French Business
One of the most striking things to visitors to Paris these days is a palpable sense of optimism among business leaders compared with the gloom of six months ago—and particularly in contrast to the anxiety of Brexit-obsessed London.
This optimism isn’t just a reflection of the surprising strength of the French recovery, with the economy growing at an annualized rate of more than 2% in the last two quarters. It also reflects growing confidence that France is in the early throes of a revolution—and a very different one to that which many had anticipated earlier this year.
Emmanuel Macron’s victory in the presidential election in May and his subsequent destruction of the old two-party system in the parliamentary elections in June were above all a victory for the Énarques—France’s traditional administrative elite drawn from graduates of its grand écoles. Under the leadership of one of their own, they finally have an opportunity to implement the radical overhauls of the French state that all governments of the past 30 years have recognized as vital but which have been defeated by partisan political fighting and violent opposition from the street.
This time it may really be different. Mr. Macron survived his first big test this week when a day of protest organized by one of France’s largest trade unions against Mr. Macron’s flagship overhaul of the country’s Byzantine labor code proved a damp squib. The CGT union said 60,000 protesters took part in the Paris demonstration; police estimated the crowd to be closer to 20,000.
Either way, it wasn’t enough to derail new rules that streamline the process for laying-off workers and, for the first time, allow companies to bargain directly with their employees over wages and working conditions.
No doubt Mr. Macron will meet more determined resistance when he pushes ahead with plans to overhaul the welfare and pension systems and cut public spending to pay for a promised 20 billion euros ($23.7 billion) of tax breaks for business and investment. Those moves will bring him up against powerful vested interests.
But for now, Mr. Macron’s early victory over the street will only have added to business optimism that he can see through his revolution.
A second striking feature of France today is what appears to be a shift in official thinking toward the eurozone since the election.
Mr. Macron has grabbed headlines with his repeated calls for a euro area budget and finance minister, following a long tradition of French demands for greater “solidarity” and more fiscal integration. While the details of these policies have yet to be fleshed out, it is clear that an important change of emphasis is taking place: Gone is the knee-jerk Keynesianism which couldn't see any problem to which more public spending wasn’t the solution; in its place is a greater awareness of the need for solidarity to be balanced by measures to ensure that solidarity isn’t abused.
Above all, French officials now emphasize that the key to improving eurozone resilience lies in deep structural reforms at the national level that boost productivity and potential growth as well as steps to improve cross-border private-sector capital flows.
As a result, Mr. Macron is unlikely to extend political capital on proposals such as the creation of a common eurozone bank-deposit guarantee fund that pools risks without doing much to improve economic performance, say officials. Instead, he will back efforts to improve the coordination and oversight of national reform efforts to drive greater economic convergence.
In this respect, the French position on eurozone reform may be more closely aligned with Germany than is widely realized. It is as if France has decided to become a Northern European country again after 20 years of being the captain of Club Med, noted one senior business leader. This bodes well for the long-term stability of the currency bloc.
A third striking aspect of France today is the almost complete absence of any public debate over Brexit. That isn’t to say there isn’t growing alarm at the lack of progress in the negotiations and how much still needs to be settled in a very short amount of time. French officials recognize that very substantial interests are at stake, in terms of cross-border investments, supply chains and trade—but they are also clear that only the U.K. can unblock the talks.
Contrary to British hopes that Paris might take a more flexible approach than the EU chief negotiator, Michel Barnier, French officials are clear that London needs to table a serious offer to settle its financial obligations before talks can proceed to the future trading relationship.
Meanwhile, French officials note with concern what they see as the unrealistic expectations in the U.K. public debate as to what a future relationship might look like and wonder if Prime Minister Theresa May can close the gap between rhetoric and reality in the time available to strike a deal.
Of course, the irony isn’t lost on Paris. For years, British euroskeptics blamed a lackluster U.K. recovery on negative spillovers from a dysfunctional eurozone. Now the tables have been turned and a big risk to France’s newfound optimism is chaos on the other side of the Channel.