Macron's spectacular misjudgement - Politicsweb

10 December 2018 - In abandoning the fuel-tax increase, he has, for the first time, shown himself to be vulnerable to violent protest.

John Kane-Berman 

Two months ago the British newspaper The Guardian urged governments around the world to "take seriously" French President Emmanuel Macron's suggestion that if the United States quit the Paris climate agreement struck three years ago other countries should refuse to trade with it.

Now, however, President Donald Trump will be amused that Mr Macron's eagerness to polish his green credentials has caused him to make a spectacular error of judgement that may jeopardise his ability to continue with the economic reform programme that until now has made him the French Margaret Thatcher, in some respects at least.

Once characterised, like Mrs Thatcher, as "not for turning", Mr Macron was last week forced by nationwide and sometimes violent protests to scrap plans to impose a fuel-tax increase to curtail carbon emissions. Until now, France, normally totally averse to economic liberalisation, has been willing to swallow many of the reforms Mr Macron implemented following his election in May last year. All of these were necessary and long overdue. The proposed fuel-tax increase was nothing but a piece of punitive virtue signalling.

Until now, Mr Macron's achievements have been impressive. He has pushed through labour law liberalisation faster than Mrs Thatcher managed. Dismissals have been made easier, so that more employers are willing to hire people on permanent contract. Severance payments have been capped. The straitjacket of national bargaining has been loosened, so it is now easier for smaller firms to negotiate wages at enterprise level.

Mr Macron sought a mandate for labour law reform during his election campaign in 2017. This helped him obtain, if not the support, at least the acquiescence, of some of his country's biggest trade unions. He was therefore able to move quickly to implement reform, protest against which eventually petered out. Over the past 20 years if not longer, strikes and blockades have foiled attempts at reform by previous presidents of both Right and Left.

Other Macron reforms include cutting corporate tax from 33.3% to 25% by 2022, eliminating wealth tax on all assets except real estate, and reducing capital gains tax from 45% to 30%. Reforms to the state rail network were pushed through to enable it to withstand competition under forthcoming European Union rules. Public training schemes have also been reformed, while universities will have more say over undergraduate admissions.  

Given the vast size and huge costs of the French state, economic liberalisation has a long way to go. But an early reward for Mr Macron's boldness is the reduction in the unemployment rate from 10.8% in October 2016 to 9.3% September this year – although the rate in neighbouring Germany is 3.4%.

Politicians brave enough to implement reforms do not always reap the political rewards. The main political beneficiary of the labour market reforms introduced in Germany from 2002 by Gerhard Schroeder of the Social Democratic Party was Angela Merkel, whose Christian Democratic Union beat him in the election in 2005 when his reforms cost him blue-collar support.

Errors of judgement over a proposed poll tax were among the reasons why Mrs Thatcher lost her job. But she been in office for 11 years and had thus been able to revitalise the British economy, whose decline most of her predecessors had been either unwilling or unable to reverse.

Now after fewer than two years into his presidency, Mr Macron faces a revolt that has spread beyond his fuel-tax increase to embrace other pent-up grievances, including those of students angry at his reforms to university admission. In abandoning the fuel-tax increase, he has, for the first time, shown himself to be vulnerable to violent protest.    

Fifty years ago student riots in Paris destroyed the presidency of the great Charles de Gaulle. Three years ago Paris was where the nations of the world supposedly bought into the climate accord to which Mr Macron was so enthusiastically committed. It would be a huge pity if the cost of that enthusiasm was the liberalising programme upon which he had so recently embarked. But one positive result may be that politicians in other countries become a little more cautious about imposing unnecessary economic costs in their crusade against "climate change".  

* John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom. If you agree with what you have just read then click here or SMS your name to 32823. Each SMS costs R1. Ts and Cs apply.  

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