* Ambitious agenda for Europe will require hard work
* Relationship with Merkel, Germany critical to success
By Luke Baker
PARIS, Nov 28 (Reuters) - During his rapid rise to the presidency, France’s Emmanuel Macron was sometimes referred to as a “lucky general” — a leader with the right skills for the job but also a generous dose of the good fortune needed to win the day.
The 39-year-old certainly took advantage of a string of lucky breaks, especially a corruption scandal that derailed the campaign of front-running, centre-right rival Francois Fillon. But six months into his occupation of the Elysee Palace, there are niggling signs Macron’s luck could be starting to turn.
In particular, the uncertain political picture in Germany has complicated his ambition to reform Europe’s single currency zone, something he has put at the heart of his presidency and that stands or falls on Franco-German cooperation.
And while changes he introduced early on to France’s employment rules provoked less unrest than expected, the impact on the economy has so far been muted. His plans to amend the pensions and benefits system may not be so readily accepted.
From a fiscal point of view, one of his main objectives is to bring the national deficit below 3 percent of gross domestic product for the first time in a decade. Yet current indications are that he will struggle with that goal, leaving France at odds with the EU’s executive Commission.
And within his own party — En Marche, formed as a grassroots movement a little over a year ago — there is unease among some members about a top-down structure that goes against the ethos that propelled him to a five-year term in May.
Some breaks continue to fall in Macron’s favour. France last week won the right to host the European Banking Agency in a lucky dip against Dublin, and domestically he faces little serious opposition from either the left or right.
But his biggest ambitions rely on a deep and sustained relationship with Chancellor Angela Merkel, whose position after 12 years as Germany’s leader has been weakened over two months of so-far fruitless talks to form a governing coalition.
“We are naturally paying close attention to everything that might help stabilise the political situation (in Germany),” Benjamin Griveaux, a close Macron ally who was recently named the government’s new spokesman, said on Monday.
“Without a strong partner it will obviously be more difficult to carry out the president’s ambitious European project.”
At one level, the fact that Merkel is now talking to Germany’s Social Democrats (SPD) about a “grand coalition”, after overtures to the Liberals and Greens failed, is positive for Macron since the SPD is more avowedly pro-EU.
But there’s no guarantee the SPD will sign up to Macron’s agenda, even if its leader, Martin Schulz, is a former European Parliament president who is committed to the project.
Schulz has only gone as far as to say Macron’s ideas need to be discussed in coalition talks with Merkel, while other SPD officials say domestic reforms to health insurance and pensions are a more pressing consideration.
“Europe is not a theme where we can simply push things through,” said Johannes Kahrs, a budget expert for the SPD in parliament and leader of the party’s conservative wing.
Macron’s ideas for overhauling the euro zone, including the creation of a region-wide budget, finance minister and separate parliament, may be just too ambitious for Germany to swallow.
“It would be nice if the conservatives went along with the idea of a budget for the euro zone, but they need to want it,” said Kahrs. “It would make no sense to try to bully them.”
Even as he focuses on his grand ambitions, Macron and his finance minister, Bruno Le Maire, must battle to get the state’s historically overstretched finances in order, while hoping that France’s currently steady growth rate doesn’t falter.
The budget deficit has been falling and should dip just below 3 percent next year, but from the European Commission’s point of view that is insufficient. It wants more done on the structural deficit, which strips out the business cycle.
If Macron and Le Maire are to achieve more, it will likely mean cutting deeper into regional budgets, where planned reductions have already provoked anger among mayors.
Unemployment figures show job creation is at a record high but the jobless rate still ticked higher in the third quarter, rising to 9.7 percent. While it is forecast to decline again, the French rate remains way above Germany’s of 5.6 percent.
Jean Pisani-Ferry, a leading economist and former adviser to Macron, believes perhaps the biggest risk Macron faces is ensuring his European strategy pays off, because his domestic agenda will in large part be influenced by it in turn.
Yet that depends a lot on Germany, and the wider EU.
“He’s making a huge political investment (in Europe),” said Pisani-Ferry, a professor of economics and public management at Sciences Po university. “And if you’re making a huge political investment, you want at some point some pay-off.
“If there is no pay-off whatsoever, then obviously there will be domestic political consequences. It will be a setback for him.” (Additional reporting by Noah Barkin in Berlin and Michaela Cabrera in Paris; Editing by Sonya Hepinstall)