Normative Narratives

Macron Impossible: French Labor Reform and the EU Budget

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Emmanuel Macron won an important election in May, when the young Frenchman defeated right wing populist Marine Le Pen to win the Presidency. In June, Macron’s new En Marche! party claimed another major victory, taking firm control of the French parliament.

In the ensuing months, Macron’s popularity has dipped a bit. This is a non-issue, the regular ebbs and flows of politics; coming in riding so high, he was bound to come back down to earth. To his credit, Macron has not tried to restore his popularity with cheap or symbolic victories. Instead, he is going right for big ticket reforms–the French Labor Code (Code Du Travail) and instituting an EU budget. Should he succeed in these herculean tasks we can forget about his approval ratings, as he would cement himself as one of the great French politicians in modern history.

The French Labor Code, the Code Du Travail, is a 3,324 page document whose origins are over one hundred years old. While I am certainly no expert on this subject specifically, it is essentially the same economic argument often heard in different contexts–worker protections vs. flexibility and growth. (Note: Just because I am advocating for looser worker protections in this case does NOT mean this is the answer in all cases. Economics is always context-sensitive.)

Ultimately this is about risk and faith–the risk of the unknown and faith that private sector growth can unlock more employment and offer a better standard of living than the current system. People are inherently risk averse, and France has a history–even a national identity–tied to championing the proletariat, which is why the Labor code currently looks the way it does:

“That hyper-regulation of much of French life, including labor, was formed in the early 19th century as part of the country’s escape from the chaos of the French Revolution.

“The emerging law,” a prominent Socialist wrote triumphantly in 1903, seven years before the birth of the labor code, “is a Socialist law.”

Indeed, at the heart of the code’s language is the notion that the worker is inevitably an exploitable object needing blanket protection from rapacious capitalist predators.”

Clearly, reform will be an uphill battle. But where there’s a will, and a need, there may be a way. The political will clearly exists, in the form of a President with a parliamentary majority who is willing to take on powerful unions and other dissenters. There is certainly a need to reform; French unemployment is too high at 9.6%, and youth unemployment is significantly higher at a whopping 23.4%. This is France we are talking about here, one of the world’s most developed countries and a pillar of the EU. Such high levels of youth unemployment risk both France and the EU’s future if left unaddressed.

The make reform more palatable, Macron will rely heavily on the idea that market forces can improve people’s lives. Greater demand for French exports would help bolster this argument, which is where his championing of an EU Budget comes into play (at least partially, it is a good idea on its own merits as well).

An EU budget would help the block’s economic performance. Look at the U.S.; in an economic downturn, the Federal government transfers tax revenue from better performing areas to struggling areas via stimulus spending, helping to speed up recovery. The EU needs something analogous if it wants to gain parity with the U.S. in terms of economic clout:

“Elected in May, the French leader is trying to reshape and strengthen the euro currency bloc by creating a euro zone finance minister and parliament, as well as a stand-alone budget to cushion against economic shocks and head off future crises.

But he is running into German resistance despite conciliatory public signals from Chancellor Angela Merkel. Her finance minister has proposed transforming the euro zone’s rescue fund, the European Stability Mechanism (ESM), into a fully fledged EMF with more powers to support weaker members.

“We should head towards a European Monetary Fund but this should in no way be mixed up with a (euro zone) budget,” Macron told Greek President Prokopis Pavlopoulos.”

Make no mistake, an EU Monetary Fund is certainly a good idea as well. But a budget and a Monetary Fund would be complementary institutions–there is no reason the Euro Zone could not implement both.

On the surface Germany remains opposed to fiscally supporting poorer European countries with direct transfers (this has been its position for some time). However, Germany does seem to be on board with an EU budget in the context of an expanded Euro Zone:

“[German Finance Minister] Schaeuble said that Juncker had discussed with Chancellor Angela Merkel his annual State of the EU speech in which he spoke of a vision of a post-2019 EU where some 30 countries would be using the euro.

The plan also includes appointing an EU finance minister running key budgets to help states in trouble.

“It is good that he is putting pressure (to expand the euro zone) but the preconditions (for joining the euro zone) must be fulfilled,” Schaeuble told the ARD broadcaster in an interview.

“It is in fact so that EU countries who fulfill the preconditions become members of the euro under the Lisbon Treaty”.

He added that EU countries wishing to adopt the single currency should not do so before their public finances and economies are sound enough as they could face the fate of Greece, which had to be bailed out by the EU and IMF in 2010.”

Rigorous “ex-ante” preconditions are absolutely warranted in this situation. Failure to have such conditions for joining a currency union, and relying too much on wishful thinking, can have disastrous results (just ask the Greeks…).

It seems, however, that in the wake of Brexit and seeing what failures of economic governance can mean, that at last the EU’s power players share the same long term vision–now comes the hard work of how to get there. To me, Macron’s plan seems more logical than Juckner and Schaeuble’s for both political and economic reasons.

Politically, by establish a Euro Zone budget and Monetary Fund for the current group, the Euro Zone will be stronger economically, making membership more appealing to outside countries. This would give ammo to political leaders who may have to sell certain unpopular reforms to their citizenries in order to qualify. Economically, a stronger Euro Zone would result in stronger trading partners for non-Euro Zone countries, helping them reach the aforementioned preconditions needed to join.    

Maybe I am being overly optimistic, but perhaps neither of these “impossible” but very important reforms Macron is pursuing–to France’s Labor code and the EU’s economic institutions–are as impossible as they once seemed.

Update: The results of the German election are in. With the far-right Alternative for Germany (AfD) and anti-EU leftist Free Democrats (FDP) performing better than expected, the prospects of closer EU economic integration certainly took a hit (although, in a bit of positive news, the FDP has seemingly softened its anti-EU stance since the election).

It will take true leadership from German Chancellor Angela Merkel to sell these necessary reforms to her coalition members. She will have to become an unabashed champion of these ideas, positioning them as the only means to promote long term economic growth for both Germany and the EU as a whole. It is unclear whether she is willing to take this position, but perhaps in her now fourth term, she is willing to sacrifice her political future to help move Germany and the EU towards the future they need.

Macron’s, for his part, is continuing to drive his vision. One avenue he will propose is greater democratization of EU institutions, as a means to popularize his vision among voters who believe the EU is unaccountable to it’s people.

This uphill battle just got a whole lot steeper…

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