France’s new reformist government

France’s new reformist government

The appointment of Emmanuel Macron as the new Minister of the Economy is the biggest change in the new French government after a bitter split over economic policy. Mr Macron is a former deputy general secretary of the Elysee Palace and economic advisor to President Francois Hollande, writes Dr Emmanuel Martin.

Mr Macron, 36, is a former business banker at Rothschild and was largely responsible for the recent rather pro-business turn of Mr Hollande, especially with regards to the ‘responsibility pact’.

French Prime Minister Manuel Valls had to shake up his government by resigning to show his authority after Arnaud Montebourg, former Minister of the Economy, openly criticised the government’s current stance on policy. Mr Montebourg quit along with the Education Minister and the Culture Minister on August 25.

Their major complaint was to stop ‘austerity policies’. President Hollande, in fact, decided to stop these policies in January 2014, if ‘austerity’ means deficit reduction through tax increases. These policies are indeed recessive, especially when the level of taxation in France is already high.

But what Mr Montebourg seemed to have in mind when talking about austerity was more a reduction in public spending through cuts in government programmes and reducing public sector wages and jobs.

The problem is that there really was no austerity of this type in France. Growth in public spending has slowed, but not been negative. And the evidence partly lies in the deficit itself - it could be 4.3 per cent in 2014, far from the promised levels.

Mr Montebourg simply wanted more ‘stimulus’ spending and rejects what he calls ‘extreme orthodoxy’ in matters of deficit.

But France has had 40 years of stimulus spending. It has led to today’s huge deficits and 57 per cent of GDP going on public spending with no notable success and record unemployment over the last eight months.

France’s fundamental issue is not a problem of demand but of supply. There are simply too many hurdles to entrepreneurship and to wealth and job creation. France’s labour market is a regulatory maze and tax levels are confiscatory. Some of those obstacles are related to public spending levels which translate into higher taxes.

Perhaps Mr Montebourg was testing Mr Hollande’s decisiveness. The president has always failed to choose but that has apparently changed. Now Mr Montebourg can play the martyr and this will certainly help his image for the 2017 elections.

Mr Hollande and Mr Valls have created a stronger opposition on the left of their own camp. This could be make it more difficult for them to get their bills passed in Parliament. But Mr Hollande can use the threat of dissolving the National Assembly - which most of the left MPs who disagree with Mr Hollande do not want, as they would certainly lose their seats.

Mr Hollande and Mr Valls have actually achieved more room to manoeuvre and achieve reforms for France. They should not miss this opportunity of getting quick results.

France needs radical reforms to re-energise its civil society rather than the minuscule steps of the last few months. The reforms will need explaining if they are to be accepted. Let’s hope the young, more ‘liberal’ Emmanuel Macron will be up to the task.

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