French President Macron has been in office for 2 years, and the French reform has achieved initial results. Although the “Yellow Vests” campaign has damaged Macron’s international reputation, reforms continue to improve the long-term structural fiscal deficit. The balance of political power is conducive to the momentum of French reform, but it still has a long way to go.
French economic reform achievements
The achievements of French economic reforms are reflected in taxation and employment. In terms of taxation, the burden shifts from companies and employees to wealthy retirees, tobacco and fuel. At the same time, the government increases the flexibility of the job market, reduces the influence of trade unions and improves the effectiveness of the social welfare system. Finally, the government launched a five-year investment plan of 57 billion euros, accounting for about 2.5% of GDP.
These measures have been recognized by the international community. In the April OECD report, reforms in the next 10 years will increase economic growth potential to 3.2%. The fiscal account of 2018 continued to improve during the tenure of Marcon. The deficit rate was 2.5% in 2018, a decrease of 0.3% from 2017. By reducing public spending and increasing the quality of the collection, the structural deficit rate also fell slightly by 0.1% to 2.3%.
Concession “Yellow Vests” has not changed its reform direction
In November 2018, a sudden “Yellow Vests” crisis caused the government to make major concessions. Among them, the government slowed down the pace of fiscal consolidation. Between December 2018 and April 2019, the government announced fiscal measures of more than 15 billion euros, resulting in a 2019 French fiscal deficit that could soar to more than 3%. The “Yellow Vests” crisis has subsided in the past few months, and Macron’s support rate has rebounded by 30%, after falling to 18%. At the same time, in the European Parliament elections, Marcon’s party scored 22.4%, exceeding market expectations.
However, in the past few months, the government has initiated several rounds of economic reform measures. At the end of May, the parliament approved the reform of the civil service retirement system, and the recruitment of public administration departments was diversified. In mid-June, the French government announced a new program for unemployment benefits reform. The bill prevents people from frequently using short-term contracts to obtain unemployment benefits and reduce inefficient fiscal expenditures. More importantly, the French government announced pension reforms in July with the goal of the same current 40-plus pension scheme. The reform plan will improve the long-term deficit problem in France. The program is expected to be submitted to the parliament for voting early next year.
Risk lies in potential social unrest
The balance of power helps the French president to use the majority of his party’s parliamentary seats in the parliament to pass the economic reform program he advocated. However, Mark Long did not expand the mass base of his elections, meaning that his views were rejected by most people. The pension reform plan at the beginning of next year is the key to the sustainability of the reform trend. According to current opinion polls, about 47% of people hold negative opinions on reform. Once a new social unrest breaks out, the government may be forced to reinstate additional public spending plans to meet the will of the people. This will lead to a further increase in the deficit level.
In summary, the French reform measures in the past few years have improved the domestic economic problems, which has helped its economic growth potential to recover from the gap between Germany and Germany. Even if Macron is able to get support in a new round of government elections, the current voter base is not enough to make Macron promote large-scale economic reforms.