Rethinking Europe

Macron = Renzi? Probably Not

Macron has two advantages over Matteo Renzi: A solid majority in parliament and the ability to give protesters some fiscal concessions.

Credit: Università Ca' Foscari Venezia www.flickr.com

Takeaways


  • Could France’s Emmanuel Macron end up like Italy’s Matteo Renzi?
  • Macron has two advantages over Matteo Renzi: A solid majority in parliament and the ability to give protesters some fiscal concessions.
  • If Macron’s concessions involve mostly issues of style and some fiscal slippage, he will stay on the reform course.
  • If Macron rescinds some pro-growth reforms and signals that he will not introduce more, France’s potential future as a growth engine for Europe would be at risk.

Could France’s Emmanuel Macron end up like Italy’s Matteo Renzi – a youthful reformer who erupted onto the national scene with a plan and mandate to transform his country, only to lose momentum prematurely?

The renewed “yellow vest” protests against Macron this past Saturday, marred once again by some street violence, raise uncomfortable questions. I have long argued that Macron’s structural reforms can usher in a golden decade for France.

Macron more like Thatcher and Schröder?

While everybody is watching with keen interest whether or not Macron may now backtrack, the hope remains that Macron will finish the job of transforming his country. In that regard, Macron would resemble Margaret Thatcher who fundamentally changed the UK during her tenure in office at No. 10 Downing Street.

And he would be like Gerhard Schröder, Germany’s social-democratic chancellor from 1998 to 2005. His “Agenda 2010” reforms of 2004 were also contentious at the time, but they definitely turned Germany’s flailing economy around.

What are Macron’s advantages over Renzi?

Despite some superficial similarities, Macron has two advantages over Renzi:

1. Macron enjoys a solid majority in parliament, supported by a party that he has founded himself. Even if his La République En Marche! does badly at the European election in May 2019, Macron can continue to govern at least until the end of his five-year term in 2022.

2. Within limits, Macron can afford to buy off protests with some fiscal concessions. France would face no financing problems if the fiscal deficit were to rise to just above 3% again in 2019.

Macron wants to meet representatives of the “green vests” protesters this week. Beforehand, he will make a major announcement at 19:00 GMT today, probably offering some concessions while also upholding a firm line against the protesters’ violent fringe.

If his concessions involve mostly issues of style and some fiscal slippage, he will stay the course. However, if Macron were to rescind some of the pro-growth reforms he has already delivered and were to signal that he will not go for further such reforms, France’s potential future as a growth engine for Europe would be at risk.

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About Holger Schmieding

Holger Schmieding is chief economist at Berenberg Bank in London. [United Kingdom] Follow him @Berenberg_Econ

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