Re-elected French President Emmanuel Macron has lost his absolute majority in parliament. In the final stages of the parliamentary election campaign, economic policy had come into focus as Macron came under pressure due to the populist proposals of the left from the EU-sceptic Jean-Luc Mélenchon. The left-wing alliance is now clearly the strongest opposition camp, while Marine Le Pen’s party, “Rassemblement National”, increased its number of seats more than tenfold. This means that in the next five years, Macron will not only have to articulate his economic policy goals more clearly and campaign for greater understanding and acceptance among the population, but also build on the support of other political forces in parliament. This applies in particular to the planned pension reform, in which Macron wants to raise the retirement age from the current 62 in order to ease the pressure on public finances. For although the economic situation at the start of his second term in office has been better than expected, there is considerable social discontent, which was also reflected in the low voter turnout.
Good macroeconomic record
The Covid pandemic was the biggest economic shock to France since the Second World War. Overall, however, the country weathered it well. The combination of a high vaccination rate with generous fiscal policy support and a stable level of private investment has proved successful.
The EU has played a major role in this positive development. Together, the Member States have been able to drive vaccine development, create financial space in budgets with the suspension of the fiscal rules, and provide funding for investment through the “Next Generation EU” programme.
The French government has also taken numerous measures to cushion rising energy prices and inflation, especially for lower-income households, including a one-off inflation compensation payment and a cap on the gas price. As a result, the inflation rate in the second-largest EU state is one of the lowest in the Union. In terms of energy policy, France is significantly less dependent on Russia than other Central and Eastern European states, as the lion’s share of energy is generated in nuclear power plants.
At the beginning of this year, economic growth forecasts were far above what could have been hoped for at the start of the health crisis. Unemployment – a particularly important metric in French politics – has continued to fall during the pandemic. At 7.4 per cent, it is now at its lowest level since the 2008 financial crisis. Measured against these macroeconomic factors, Macron’s first term in office can certainly be viewed in a positive light.
A great amount of social discontent
A good economic situation should give an incumbent government a tailwind in elections, but the first round of presidential elections showed how fragmented the society is. Both the extreme right and the extreme left were able to record large gains. This was particularly evident among young and low-income voters. In both demographics, two-thirds cast their votes for Le Pen or Mélenchon.
This highlights the anger and disappointment with politics. There is a low level of trust in elites, politics, and the media, of which the two major national parties have been the latest victims. Both have almost slipped into political irrelevance. The low voter turnout confirms this development. After a historically low 47.5 per cent in the first round of parliamentary elections, not even half of those eligible to vote went to the polls in the second round.
With social spending of more than 30 per cent of gross domestic product, France was the OECD frontrunner in 2019. Nonetheless, there is a sense of gross social injustice that has triggered a desire for radical change. In a September 2021 poll by the Ipsos Institute, 75 per cent of respondents said France was in decline. It seems that the population does not feel that it is participating in the positive macroeconomic developments. This feeling was epitomised by the so-called Yellow Vests protests, which in 2018 were initially directed against a higher levy on fuel, but then expanded to oppose general tax policies and government. Macron, who presents himself as a president of the centre, is seen by many as the president of the rich.
Challenges for economic policy
In his second term, Macron’s biggest challenge will be the lack of a majority in parliament in addition to countering social discontent with his economic policy. In this context, the ability to reach political compromises in parliament will be a test for the French political system. If successful, it could increase citizens’ acceptance of the government’s measures. Macron has five years to overcome the ideological rifts in economic policy and convince society that the EU is not an obstacle but a means to ensure the prosperity of the French people. On the other hand, it is likely that the increasing political polarisation and threatened dysfunctionality of the parliament could hinder any reasonable dialogue on economic policy.
With this in mind, the external macroeconomic environment is becoming increasingly unfavourable, at least at the beginning of Macron’s second term, mainly because of the accumulating consequences of the war in Ukraine, such as inflation and economic slowdown. Debt financing costs are also likely to rise in the future. In addition, the EU is due to return to discussions on fiscal rules reforms in 2023. This will create fertile ground for populist forces to criticise Macron’s economic policy.
