Rethinking Europe

Trouble for Macron?

Facing yellow vests, Macron does not see red yet.

Credit: Jeso Carneiro www.flickr.com

Takeaways


  • The “yellow vest” protest movement has turned into the biggest challenge for Emmanuel Macron yet.
  • Over time, the “yellow vest” protests have broadened out to an overall rejection of Macron’s policies and his presidency.
  • It is early days for Macron. He can cope with some setbacks as he is not facing re-election before 2022.
  • Macron‘s labor market, tax and other reforms have already improved the long-term growth potential of the French economy.
  • Despite the present wave of protests, France could still be heading for a golden decade.

The “yellow vest” protest movement has turned into the biggest challenge for French president Emmanuel Macron yet.

While the protests are drawing fewer people onto the streets — an estimated 282,000 on November 17, 106,000 on November 24 and about 75,000 on December 1 — they have become more violent.

Following a significant surge in oil prices, the protests initially focussed on Macron’s determination to raise petrol taxes again in 2019 after an earlier increase at the start of 2018.

That the higher petrol taxes are meant to make the tax system more eco-friendly and that the receipts are largely used to cut other taxes has not soothed the anger of many of the protesters. Many are rural voters who rely on their cars for long commutes.

Rejecting Macron

Over time, the protests have broadened out to an overall rejection of Macron’s policies and his presidency.

In a move to calm the situation, the French prime minister will meet the opposition and some “yellow vest” representatives this week, possibly as early as today.

While the government may offer some concessions, perhaps a delay in the tax hike if oil prices were to surge again, one should not expect Macron to back down significantly.

One reason is that the 30% drop in oil prices from their peak in early October should lead to a significant decline in pump prices shortly. In turn, this could help contain the protests.

Progress ahead?

Macron‘s labor market, tax and other reforms have already improved the long-term growth potential of the French economy.

However, reforms often hurt before the positive results become visible. Macron’s approval ratings have plummeted this year. Macron’s party may not do well at the European election next May.

Still, it is early days for the French president. He can cope with some setbacks as he is not facing re-election before 2022. In addition, he enjoys a comfortable majority in parliament while the opposition remains in disarray.

More reforms on the way

Thus, despite the current spate of protests, Macron will probably be able to implement some further reforms in the next 12 months.

Although he may not be able to deliver on all his reform promises, the package of reforms he is pursuing has the potential to reach the critical mass needed to turn France into a significantly more dynamic economy over time.

Despite the present wave of protests, France could still be heading for a golden decade.

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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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