Macron-Economy

Emmanuel Macron

As a former inspector for the General Inspection of Finances, banker and Minister of the Economy and Industry, Macron has a strong background in economics, which plays a key part in his decision making. Macron’s liberal approach to economics aims to reignite French economic growth and competitiveness while restraining public debts. His main domestic reforms seek to deregulate the labour market, reform the retirement system, reduce taxes and lower the number of civil servants. A central objective for Macron is to lower France’s debt and public deficit. European budgetary reform is the other main aspect of Macron’s economic program, although he has been confronted with scepticism from Germany, Austria and the Netherlands. Finally, on the global scale, the French president is faced with increasing hostility from an ever more unpredictable United States, while he increases economic ties with China. 

Liberal domestic reforms

Macron’s overall aim is to restore French competitiveness, attract foreign investment, enhance job creation and lower the public deficits. Macron is inspired by his economic experience based around liberalism; he needs to reverse some of the social-economic gains from the “30 glorieuses” (1945-1975) that the French State can no longer sustain because of low economic growth.

In 2017, Macron passed a major reform of French labour laws, making it easier for companies to fire and hire workers in France, and thus increasing the country’s competitiveness. Macron also recognizes that France is one of the countries with the most fiscal constraints (notably, taxation), and thus has sought to lower taxes on the population and small/medium companies. His reforms of the retirement system, social security and planned suppression of 120,000 civil servant jobs aimed to limit the increase of French debt, which currently stands at 98% of GDP. However, due to large union-sponsored strikes, protests and the Covid-19 pandemic, Macron was not able to implement these reforms. 

Macron also implemented a tax on large American tech companies (GAFA tax- Google Amazon Facebook Apple) to increase state revenue. However, the EU was unable to find an agreement on a common GAFA tax, leaving France to be hit with retaliatory tariffs from the US. As France does not have sufficient economic weight to counter US retaliations individually, Macron had to come to an agreement with Trump to cancel the GAFA tax in exchange for the removal of the tariffs on French goods. Nevertheless, the GAFA tax remains highly popular in France, as 89% of the population is in favour of the tax, while only 20% believe the tech giants are taxed sufficiently. This leaves the door open for Macron to implement the tax unilaterally, or with the EU in the future. Furthermore, taxing these tech giants is key for Macron, as it shows he has the political will to punish tax evasion and shady business practises by the tech giants, so Macron is keen to keep insisting on these regulations. The French president has also been insistent on investing in tech and the digital transformation, committing €5 billion to tech startups.

With the new liberal approach, the French economy was improving before Covid-19 hit France: economic growth hovered around 2%, unemployment fell from 10% to 7.8% per cent and France went from the 23d to 15th most competitive country in the world. However, Macron has been strongly hindered by the country’s powerful unions, leftist base, and the Gilets-Jaunes movement. Covid-19 will undo this economic progress, forcing Macron to formulate an economic recovery program. Macron is now faced with dwindling popularity (40% approval ratings), approaching presidential elections in 2022, and the necessity to restart the country free of protests. As such, the French president will have to modify his economic strategy and select which reforms he chooses to push on with. 

European Fiscal Reform and European Integration

The other major pillar of Macron’s vision for the future of European integration is European budgetary integration. Indeed, the EU is a monetary union but lacks fiscal instruments that are necessary to make monetary policies efficient (fiscal policy is associated with raising taxes, deciding budgets/spending, managing debt/deficits). In light of this, Macron has proposed creating a budget for the EU and an EU finance minister. This would accelerate European economic integration while giving the EU the necessary tools to make the Monetary Union more efficient.

The move to create a budget for the European Union also sets up the implementation of a fiscal union to accompany the monetary union. The French president wages that a fully functioning economic union in the EU will be beneficial to the European countries as a whole, while eventually bridging the European North-South divide. France would directly benefit from this consolidated European economic union by being one of the leaders of the second-largest economy in the world.

These proposals, which would lead to collectivizing European debt and raising money for the EU through EU bonds, are popular with Southern countries (who feel that northern countries are strangling them economically with forced austerity and not helping out enough), but unpopular in Northern countries, who don’t want to guarantee Southern debt in fear that these countries will stop trying to limit their deficits. Macron’s proposals have had a tough time getting through to Merkel, and are far from unanimous in the EU; however, they have seen advancements lately due to the Covid-19 pandemic with the French-German Corona bonds proposal.

To finance the EU economic rescue fund, France and Germany agreed to raise €550 billion through EU bonds (also called Corona bonds), essentially collectivizing that €550 billion of European debt. Germany, Austria and the Netherlands hope this is a one-time event, but the bonds clearly set a precedent for European fiscal integration, notably if the plan is successful. As times of crises often open the way for major reforms in the EU, Macron is eager to push on with his efforts to implement an EU budget and budget minister in a post-COVID-19 Europe. 

In order to create this EU budget, Macron has laid out a roadmap of proposals that can be implemented in the short term. These proposals include setting criteria that gradually brings social and tax models closer together. Notably, Macron wants to define a common policy for corporation tax rates, especially the tax on numerical giants (GAFA tax), with the funds going to the EU budget; guarantee a common minimum wage adapted to the economic situations of each country; and change temporary worker laws that allow for social dumping in the EU. The French president wants to make respect for these criteria a precondition for access to European solidarity funds. So far, laws on temporary workers have tightened, although Macron clashed with Poland.

However, this is the only substantial development Macron has made headway on, as Northern EU countries continue to oppose plans for a common EU minimum wage, and the EU has been unable to advance with the GAFA tax due to US threats of retaliatory tariffs. Nevertheless, Macron benefits from a widespread consensus in European public opinion that GAFA needs to be more regulated; 74% of European public opinion believes GAFA is not acting in the population’s best interest, while 64% believe these tech giants should be more regulated by the EU. Furthermore, the European Commissioner for the Internal Market, Thierry Breton (Macron’s ally), promised that the EU would implement its own GAFA tax if an agreement could not be reached at the OECD. The OECD member states are currently negotiating a framework for the taxation of GAFA, but heavy American resistance to any meaningful tax or regulation means most countries will likely unilaterally implement taxes on the tech giants  (like France did in 2018), creating the risk for a proliferation of trade wars.

French-American Trade Disputes

Macron is currently entangled in an economic dispute with the US. President Trump is unhappy that France plans to substantially tax US tech giants, saying that only the US can tax US companies and that the tax is discriminatory towards US interests. Macron taxed 27 tech giants 3% of their yearly income in 2018, which is highly popular with French public opinion as these companies pay twice as less taxes than other major companies in other sectors.

In response, Trump implemented tariffs up to 100% on French cheese, wine and handbags (on top of the threatened tariffs on cars and automobile parts for the whole of the EU). Faced with a lack of European coordination on the GAFA tax and the US tariffs, Macron backed down and suspended the tax in 2019. However, the GAFA tax remains highly popular in France, as 89% of the population is in favour of the tax, while only 20% believe the tech giants are taxed sufficiently. This leaves the door open for Macron to implement the tax unilaterally, or with the EU in the future. Taxing these tech giants is key for Macron, as it shows that he has the political will to punish tax evasion and shady business practices by the tech giants, so the French president is keen to keep insisting on these regulations. 

For Macron, the re-implementation of the GAFA tax presents several challenges:

  1. He needs the EU to standardize the GAFA tax (Google, Amazon, Facebook, Apple) to the entire bloc for coordinated fiscal purposes, and to resist the US counterattacks more efficiently.
  2. Macron wants the tariffs on French goods removed.
  3. The French president still needs to tax the tech giants, as the potential tax revenue of €550 million will increase from year to year.

The tax has also been criticized by economists for being ineffective, noting that tech companies can pull out of the country (like Google which transferred €20 million to Bermuda in 2017); while the tax in reality only impacts French citizens. The GAFA tax is in line with Macron’s pledge to defend French business interests and the French taxation system while standing up to American “imperialism” on the matter is popular with the French population.

However, Macron has been leveraging his relationship with Trump to find common ground on the matter. As such, both countries have suspended the GAFA tax and wine tariffs respectively in anticipation of a global OECD resolution on numerical taxation. The OECD member states are currently negotiating a framework for the taxation of GAFA, but heavy American resistance to any meaningful tax or regulation means most countries will likely unilaterally implement taxes on the tech giants  (like France did in 2018), creating the risk for a proliferation of trade wars. A common EU GAFA tax (more likely due to the necessity to raise funds post-COVID-19) and strong support from public opinion could give Macron a major win in the transatlantic trade disputes.