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Macron Impossible: French Labor Reform and the EU Budget

MI2

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.

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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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Update #2 (2/7/18):

Well, I guess it is always darkest before dawn! It seems that after four months, Germany has a working government coalition. This power sharing agreement between Merkel’s CDU and the more liberal SPD included major concessions to the SPD. One of the main concessions was over the finance ministry position and German support for an EU Budget!: 

“In a move likely to herald a shift in Germany’s euro zone policy, a source involved in the negotiations said the SPD would take the finance ministry, a post held until recently by conservative Wolfgang Schaeuble, widely despised in struggling euro zone states during his eight-year tenure for his rigid focus on fiscal discipline.

SPD leader Martin Schulz said earlier this week that his party had ensured an agreement with the conservatives would put an end to “forced austerity” and set up an investment budget for the euro zone.

In a 177-page coalition document, the parties laid out plans to develop the euro zone’s bailout fund into a full-blown European Monetary Fund and support budgetary means to shield the euro zone from crises.

“We want a (European Union) budget for future spending geared toward bringing more benefits for Europe,” they wrote, adding that they backed structural reforms championed by French President Emmanuel Macron.

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Save the EU, (So it Can Help) Save the World

Two Birds, One Stone

The first round of the French Presidential Election saw anti-EU Marine Le Pen advance to the second round runoff. Her defeat there is not the foregone conclusion many think it is–we have all seen this movie before.

Regardless of the outcome of the election or any future “Frexit” vote, European geography won’t change; Russia will still be an aggressor, and the Middle East will remain a volatile neighboring region. Countries on the European continent need a viable joint security plan. For countries that remain in the EU, a new economic plan is needed to stop these exit movements from gaining popular support.

Three interconnected problems seriously undermine the future of the EU–economic, security, and cultural. Economic contraction from the Great Recession / European Debt Crisis, met with austerity policies, has led to high unemployment and stretched social services. A weak military (partially caused by austerity but primarily the result of historic over-reliance on the US) has left Europe unable to act decisively on regional security issues, resulting in an influx of refugees. The arrival of refugees coincided with an increase in terrorist attacks and exacerbated economic insecurity, fueling strong anti-refugee sentiments across the continent. Given the long-term inability of mainstream politicians to remedy these problems, it is not surprising that once fringe populists offering simple solutions have emerged as a real threat to the future of the EU.

One would think the success of anti-EU movements would prompt a strong response from the block. Unfortunately, it seems like business as usual in Brussels. EU negotiators just demanded a huge 3.5% primary surplus of Greece for an indefinite period of time in exchange for bailout funds, even as it grapples with 23.5% unemployment (almost 50% for young people).

The solution to these interconnected problems, although not pretty, is clear–exempt defense and security spending increases from Greece’s budget surplus target. In general, exempt defense and security spending increases from EU budget rules. These rules are often disregarded anyways, but bailout countries like Greece do not have this flexibility. The result is the poorest countries are forced to accept the most growth-constricting policies.

For Euro countries, make cheap ECB funds available to finance such spending. Security provides a common benefit, so its only fair that the costs be reduced by the common strength of the European economy.

The old saying “war is a rich man’s game but a poor mans fight” is an unfortunate economic reality. US servicemen and women come primarily from lower income families, and this plan would appeal most to the poorest Europeans. But there are, however, benefits to both society and individuals to having stronger armies in the EU. A stronger force can act as a deterrent, discouraging bad actors from, well, acting badly. When preventative peacebuilding, diplomacy, and deterrence fail, a strong army can act decisively in a “just war”. The economic benefits realized by military families are real, and can contribute to economic growth and opportunity.

It is not my intention to glorify war, there are many downsides to it; using force should always be the last option, but for global powers it must be an option. I also want to be very clear, this is not a call for conscription. Those who do not wish to serve in their country’s armed or homeland security forces will of course be free to pursue other options.

Not Ideal, But a Chance to be Real

Ideally, fiscally conservative EU countries would just allow poorer countries to engage in stimulus spending attuned to their specific needs. But almost 10 years after the Great Recession, there is little reason to believe this is the case. In fact, Greece’s recent bailout terms are evidence to the contrary.

Ideally, EU defense and security spending would align with the risks facing its members. But despite terrorist attacks at home, Russian aggression at it’s doorstep, and regional instability in the neighboring Middle East, only marginal steps have been taken on this front.

Eventually “ideally” no longer works. Within the complex bureaucratic framework of the EU, pursuing the ideal has resulted in inaction, which has proven to be the worst course of action of them all. Everything is pointing towards inadequate defense and security spending by EU countries. Europe’s security blanket (the U.S.) is now taking a harder line on defense contributions. It is past time for EU leaders to act decisively before the block becomes irreversibly damaged.

As with any major program there are many specifics to be worked out. For instance, how to maximize the resources that go to “labor” (troops, homeland security forces, intelligence officials) as opposed to large “capital” items (aerial bombers and drones for example), without compromising the objective of improved military and security capabilities.

The proposed solution is a just starting point. But it is the starting point for an idea that can solve multiple problems, and should have support from a wide range of politicians–anti-austerity liberals, populists, and neoconservatives. It is also a relatively simple solution itself, so it should play well with blue-collar voters who are fed up with ineffective technocratic solutions.

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I am not calling for a global military buildup. Increased military spending by the EU should be met with decreasing military spending in the US. As I have consistently said, Trump’s pressure on EU countries to increase defense spending has been a rare positive for his administration, but would be a wasted opportunity if coupled with the huge increase in defense spending in his proposed budget.

 


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Conflict Watch: (In Syria) Things Will Get Worse Before They Get Better

Perhaps nowhere does this old saying ring as true as in present day Syria. Two weeks ago I wrote about “The Deteriorating Syrian Civil War and Humanitarian Crisis” and since then things have not gotten any better on the ground. However, it seems that Western powers are finally organizing the support that legitimate factions of the Syrian opposition need to present a real threat to the Assad regime without relying on the help of extremist / terrorist organizations:

“Ministers from 11 countries including the United States, European and regional Sunni Muslim powers, held talks that Washington said should commit participants to direct all aid through the Western-backed Supreme Military Council, which it hopes can offset the growing power of jihadist rebel forces.”

“The meeting in Qatar brings together ministers of countries that support the anti-Assad rebels – France, Germany, Egypt, Italy, Jordan, Qatar, Saudi Arabia, Turkey, United Arab Emirates, Britain and the United States.”

“Qatar’s Prime Minister Sheikh Hamad bin Jassim al-Thani, whose country has been one of the most open backers of the anti-Assad rebels, said that supplying them with weapons was the only way to resolve the conflict.

“Force is necessary to achieve justice. And the provision of weapons is the only way to achieve peace in Syria’s case,” Sheikh Hamad told ministers at the start of the talks.

“We cannot wait due to disagreement among Security Council members over finding a solution to the problem,” he said. He also called on Lebanon’s government to halt intervention by Lebanese factions in the neighboring conflict.”

“‘We won’t get a political solution if Assad and his regime think they can eliminate all legitimate opposition by force, and so we do have to give assistance to that opposition,’ Secretary of State Kerry told reporters before the start of Saturday’s talks.”

“After a series of military offensives by Assad’s troops, including the recapture of a strategic border town two weeks ago, President Barack Obama said the United States would increase military support for the rebels

Two Gulf sources told Reuters on Saturday that Saudi Arabia, which has taken a lead role among Arab opponents of Assad, had also accelerated delivery of advanced weapons to the rebels.

‘In the past week there have been more arrivals of these advanced weapons. They are getting them more frequently,’ one source said, without giving details. Another Gulf source described them as ‘potentially balance-tipping’ supplies.”

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One can only hope that this aid is not too little too late, and many questions emerge from the concerted arming of the Supreme Military Council by Western powers: Does the political will exist among the opposition to fill the power vacuum in a sustainable democratic fashion upon Assad’s removal? Would a new governing body protect the rights of minorities, including Alawites, in a post-conflict Syria? What will happen to the extremist factions the opposition once relied on (specifically al-Nursa)? Will these groups attempt to sabotage the Western backed opposition?

Despite all this uncertainty, one thing is clear; the Assad regime has lost all credibility and cannot remain in power / be allowed to run in future Syrian elections (having Assad involved in future elections would inherently distort the democratic process and risk reigniting the sectarian divide). It has also become clear that Russia will continue to honor its military contracts with Damascus, and that Assad has no problem turning the Syrian Civil War into a regional conflict if it helps his prospects:

“U.S. Secretary of State John Kerry said the meeting of 11 countries in Qatar was a chance to discuss “efforts to increase and coordinate support for the Syrian political and military opposition”. Kerry said Assad had allowed Iranian and Hezbollah fighters “to cross the lines from Lebanon and engage in the fight on the ground”.

“The Assad regime’s response to a legitimate global effort to try to have a peace conference was to in fact militarize the efforts and internationalize (the conflict) and make the region far more dangerous as a consequences,” he said.”

(In the spirit of fairness, the opposition is also guilty of turning the conflict into a regional one by enlisting other countries help–this is a reality of modern warfare especially in Africa and Middle-East where the sectarian / cultural divide–alongside human rights abuses–underpins the majority of conflicts in the region).

“President Michel Suleiman has called on the Lebanese Shi’ite Muslim Hezbollah movement to pull its guerrillas out of Syria, saying any further involvement in its neighbor’s civil war would fuel instability in Lebanon.” While coming from the right place, such a plea will ultimately be in vain–you cannot end a  2+ year old Civil War by shaming the fighters, as both sides believe they are fighting for a just cause.

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Can arming the rebels really help lead to a peaceful compromise? Honestly, I do not think so–I think the idea of a peaceful political transition in Syria is a pipe-dream. Even in the face of defeat, I do not believe Assad will step down–I think he will go down with the ship. His family has been in power in Syria for over four decades, Assad knows nothing else and probably believes his power in Syria borders on “divine right“. I believe that Western powers are building up the capacity of the Supreme Military Council to keep Assad’s forces busy, as a covert “Gadaffi-style assassination” is planned. This may be an extreme position to take, but it is the only realistic solution that does not involve more civil war, human suffering and regional instability.

Former U.S. general Wesley Clark is more optimistic that arming the opposition can lead to a political transition:

“Mr. Assad knows that Mr. Obama can be surprisingly resolute, as in his approval of drone strikes and the military operation to kill Osama bin Laden. While the United States begins to supply the rebels, there is a crucial opening for talks. Russia or China could recalculate and help lead Syria to a real peace process, as Viktor S. Chernomyrdin, a former Russian prime minister, did in Kosovo in 1999. Iran could emerge from a truce with Hezbollah’s power in Lebanon (and its strong links to Iran) intact.

The formula for diplomacy is clear: a cease-fire agreement; a United Nations presence; departure of foreign fighters; disarmament of Syrian fighters; international supervision of Syria’s military; a peaceful exit for Mr. Assad, his family and key supporters; a transitional government; and plans for a new Syria.

The conflict, and the diplomacy needed to end it, are likely to play out simultaneously. All parties will be recalculating their options and risks, so any assurance Mr. Obama gives Americans that he will limit our engagement would reduce the chances of success. This is a nerve-racking time, but the consequences of inaction are too high. Working together, America, Russia and China can halt Syria’s agony and the slide toward wider conflict. Mr. Obama’s decision might be the catalyst to get that done.”

I personally do not see Assad as this calculating figure, but time will tell which version of Assad is closer to the truth.

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Of course arming the rebels is no slam-dunk. Even if Assad woke up tomorrow and decided he cannot win this war and would leave (which he will not), arming the rebels inevitably creates the risk that one day our own weapons will be used against us, regardless of how thoughtfully weapons are dispersed.

“As the United States and its Western allies move toward providing lethal aid to Syrian rebels, these secretive transfers give insight into an unregistered arms pipeline that is difficult to monitor or control. And while the system appears to succeed in moving arms across multiple borders and to select rebel groups, once inside Syria the flow branches out. Extremist fighters, some of them aligned with Al Qaeda, have the money to buy the newly arrived stock, and many rebels are willing to sell.”

Even if the arms go directly to the Supreme Military Council, there is no telling where they will end up after this conflict is over.

“For Russia — which has steadfastly supplied weapons and diplomatic cover to President Bashar al-Assad of Syria — this black-market flow is a case of bitter blowback. Many of the weapons Moscow proudly sold to Libya beginning in the Soviet era are now being shipped into the hands of rebels seeking to unseat another Kremlin ally.”

The U.S. learned a similar lesson when arms and training given to Al-Qaeda in the 1970s to oppose Soviet interests backfired.

It is impossible to know where the weapons will ultimately end up–underpinning the ongoing debate of arming the Syrian opposition. Think of the Western world’s “best case scenario”–a legitimate Syrian opposition assumes power following Assad’s removal and attempts to setup a democratic Syria. There is no telling how long that democracy will last (often first attempts at democracy fail). These weapons could be stockpiled by a pro-Western power, only to be lost in a future military coup. The existence of these weapons poses the possibility that they will fall into enemy hands at some point in the future–especially as the conflict becomes a memory and international attention focuses elsewhere.

Still, steps are being taken to ensure the arms are channeled to legitimate branches of the Syrian opposition. If in the future these weapons fall into enemy hands, that will have to be dealt with in the future. Perhaps newer technology, such as GPS or even a remote “kill-switch”, are possible for bigger-ticket items sent to the opposition. If anybody knows anything about how donors keep tabs on military aid be sure to let us know in the comment section.