For a nation of supposedly “stubborn Gauls,” as President Emmanuel Macron described his people last month, the French seem to have taken his economic reform medicine with few complaints. This should not be a surprise. Despite the cliches, surveys mainly show that the French approve of public spending cuts and the rhythm of change introduced since Macron took power in 2017.

Yet clearly Macron is not loved, either. His dwindling approval ratings invoke unfavorable comparisons with predecessors like Francois Hollande. Slowing economic growth hasn’t helped. France is a whisker away from a 3 percent deficit and 100 percent debt-to-GDP ratio.

While it is far too early to write off Macron, the biggest risk facing France is that he will lose his conviction. One online survey by Ifop earlier this month showed that more than half of French people believe Macron’s term will have changed France in only “a few areas.” Even some 40 percent of those who identify as supporters of Macron’s party don’t believe France is set to undergo great change.

“Profound change” is what Macron was elected to deliver, and in July, he reiterated “strong and bold” decisions to cut public spending. An August survey by Viavoice found that 55 percent of French people backed deficit reduction and public-spending cuts. It’s a shame, then, that recent policymaking has been either confusing or tentative.

One example is the tortuous debate on the psychological effects of a proposed “Pay As You Earn” taxation system, in which taxes would be collected monthly and deductions shown on wage slips. Currently, the French pay taxes at or near the end of the fiscal year, in one or several lump sums. The government seems to fear that actually seeing a lower net salary on their paychecks would trigger a domino effect on wage negotiations, consumer confidence and political support. It’s hopeful that using special font sizes will calm fears.

The French would surely cope with tax transparency if it came with belt-tightening and improved efficiency on the part of the state. Public spending is due to account for 54.6 percent of GDP this year, about 1 percent higher than official targets. Attempts at lightening the tax burden have not made it much simpler: Around eight new taxes were created in 2018. An “exit tax” for high earners that move abroad was due to be scrapped, but will instead be watered down.

Macron’s high-wire act of taking away with one hand and giving with the other has had perverse effects, though they may only be short-term: In the first quarter of 2018, social-security contributions levied on wages fell by 3 billion euros ($3.5 billion), while income tax receipts rose by 5.3 billion euros.

The gears of policy are getting stuck where they should be running smoothest. One proposed law to boost small businesses, dubbed “Pacte,” has been estimated by the French Treasury as potentially unlocking an extra 1 percent of GDP growth in the long term -- an open goal for the government. And yet it has taken almost a year to get from consultation stage to parliament stage and the law has become overstuffed, reducing the benefits. Resistance from interest groups hasn’t helped. Even if Pacte is approved later this year, it will take until 2025 to add only 0.3 percent to growth. By that time, Macron will either be well into his second term or gone.

France has never been short of ideas on how to boost the economy. Past presidents -- Hollande, Nicolas Sarkozy and Jacques Chirac -- each received piles of reports from economists and business leaders recommending all sorts of measures, some adopted, some binned. The challenge isn’t new: The past 25 years have seen French public spending consistently grow faster than government revenues and deficit reductions have been too weighted towards hiking taxes. Less, and more efficient, spending is a necessity and it could be done without hurting the quality of services the French enjoy in return, but it would require Macron to shed more public sector jobs and prerogatives than he has so far outlined.

The ingredients for change in France are political willpower, a mandate for change and a benign economic environment that would encourage fixing the roof while the sun shines. By luck and by design, Macron has had a taste of all three. His approval ratings are falling, but he still has a parliamentary majority behind him and a fragmented opposition before him. Economic headwinds should be a reminder of the fleeting nature of this golden opportunity, not a spur to inaction or paralysis.

Macron’s campaign book was simply titled: “Revolution.” We aren’t quite there yet.


Lionel Laurent
Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. -- Ed.

(Bloomberg)