Stratfor wrote in its 2019 Second-Quarter Forecast that France would push ahead with its reform agenda while trying not to irritate a dissatisfied electorate. Stratfor also forecast that the French government would scale back some of its plans and steer clear of unpopular measures like dismissing large numbers of public sector workers. President Emmanuel Macron's announcements are in line with this forecast.
At long last, French President Emmanuel Macron has announced his proposals for economic and institutional reform. On April 25, Macron said he planned to offer 5 billion euros ($5.6 billion) in income tax cuts, link pension hikes to inflation for pensions under 2,000 euros and close loopholes that allow companies to escape taxes. Macron also proposed legislation to make referendums easier to hold, reduce the number of lawmakers in parliament and make France's electoral law more proportional. The announcements came after the end of the Great National Debate, a series of meetings between French government officials and voters across the country, that Macron launched in reaction to the yellow vest protests that began in late 2018.
What It Means
With the announcements, Macron is seeking to take back control of the agenda after the political crisis generated by the yellow vest protests. And Macron has reason to try and shape the narrative: Just a month before European parliamentary elections on May 26, opinion polls show that Macron's popularity remains low at about 30 percent and that his En Marche party is fighting a neck-in-neck battle with the far-right National Rally.
Macron has sought a middle ground between introducing reforms and avoiding decisions that could further infuriate voters. He said the French would have to "work more" to compensate for the tax cuts, although he did not announce any reforms to France's 35-hour work week, contradicting earlier media reports that speculated his administration would try to change the law. Macron further suggested citizens may need to make more contributions before retirement — yet said nothing about raising the retirement age itself, which currently stands at 62. Macron, meanwhile, also signaled that he could climb down on a campaign promise to eliminate around 120,000 public sector jobs.
France's main opposition parties criticized Macron's proposals, saying they would not improve people's lives. The left-wing General Confederation of Labour (CGT) union took a similar view, calling the president's announcements "cosmetic" and adding that they would not improve workers' living conditions.
Macron has sought a middle ground between introducing reforms and avoiding decisions that could further infuriate voters.
On the European front, Macron acknowledged that cooperation with Germany was not proceeding as smoothly as desired but that he remained committed to eurozone reform. Pointedly, however, Macron said Europe's passport-free Schengen area may require an "overhaul," suggesting that the European Union could expel countries from the agreement if they fail to protect Europe's external borders from illegal migration. The recommendation is probably an attempt to compete with the National Rally, which takes a tough line on immigration.
Not long after the outbreak of the yellow vest protests in November, Macron announced similar tax cuts and pension hikes at a cost of around 10 billion euros. Now, the French government is opening its purse at a time when its economy is slowing down and its deficit is widening. In April, the International Monetary Fund lowered its growth projection for France in 2019 to 1.3 percent — a 0.2 percent drop from its January forecast. And earlier this month, France also admitted that the country's fiscal deficit for 2019 would come in at around 3.1 percent of gross domestic product, which exceeds the EU limit of 3 percent.
A worsening French deficit could drive a wedge between France and Northern European countries, which argue that the bloc's Mediterranean members should balance their budgets before EU authorities introduce any measures to share financial risk throughout the eurozone. Paris, too, could run afoul of Rome as a result of the French deficit, as Italy has accused the European Commission of maintaining double standards by demanding that it reduce its deficit while turning a blind eye to the French government's failure to adhere to the bloc's limits. In the end, Macron's domestic balancing act is designed to reduce the chances of social unrest in the coming months, but it could come at the cost of worsening France's fiscal situation.