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Breakingviews - “Pere Noel” Macron won’t cheer marchers or markets

Paris, France, Dec. 11, 2018. Rob Cox/REUTERS

PARIS (Reuters Breakingviews) - After four successive Saturday protests that saw sustained rioting in the streets of Paris, French President Emmanuel Macron learned a lesson that crushed the hopes of his recent predecessors: it is no easier to govern than to reform. That revelation has come very late for the youthful former banker, who believed he’d been given a clearer mandate to do more than simply avoid conflict or hustle France through another few years of listlessness.

In a prime-time address on Monday evening, Macron pivoted away from the market-friendly policies that he campaigned on just over a-year-and-a-half ago towards something more like what League leader Matteo Salvini is promising Italians. He pledged to boost the monthly minimum wage by 100 euros, without any cost to employers; remove taxes on overtime; and offer relief to poor retirees. The measures will cost the French treasury some 10 billion euros.

These promises could push the budget deficit above the EU limit of 3 percent of GDP. Though France has nothing like Italy’s debt levels, this largesse will cost something. As Macron’s electoral chances strengthened ahead of the May 2017 vote, France’s cost of borrowing for 10 years dropped from 86 basis points above Germany’s to around 50. A year later they fell below 30 basis points as Macron moved forward with his programme. With Italy now paying 290 basis points more than Germany, France’s current spread of 45 looks poised to increase.

That might be an acceptable price for quelling the “gilets jaunes,” or yellow-vest, uprisings that have seen widespread unrest in Paris and other cities, and threaten to dent economic progress across the country. But the movement’s erstwhile leaders – egged on by Macron rivals like Jean-Luc Mélenchon of the far-left La France Insoumise - are calling for an “Act V” of demonstrations on Saturday. They do not look to have been sated.

Behind a desk with a golden inkwell at the Élysée Palace, Macron denied making U-turns. But it was certainly a volte-face from the implicit trade-off when he was elected. His pitch then was pro-business, to reverse the diaspora of French talent by lowering taxes on the successful, luring multinationals, and reducing fiscal and bureaucratic burdens keeping unemployment stubbornly high.

Those are worthy goals. But if Peugeots continue burning on the Champs-Elysées, they will be unattainable.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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