Macron versus vibes

Emmanuel Macron’s economic policy agenda since his first term in 2017 reads like an IMF wish-list of structural reforms. It includes private sector deregulation, pension reforms, improving labour market flexibility, raising the age of retirement, and ironing out wrinkles in the benefits and tax system.

The problem is that short-term economic vibes do not wait around for supply-side policies that promise long-term boosts to economic growth and public finances, however sensible they may be.

The advice from technocrats is often to front-load structural reforms early, so that some of the tangible benefits can be felt by the public ahead of voting time. That is something Macron largely heeded.

Indeed, there have been notable improvements in France’s business and investment climate since Macron came to power. For instance, reforms have seen a step-change in the number of new business creations across the country.

Likewise, Macron has a decent track-record on unemployment. Labour market reforms have seen the number of new hires on long-term contracts increase. Joblessness has steadily fallen, and the president has overseen a notable drop in youth unemployment.

So, business and labour market reforms have led to tangible changes for entrepreneurs, investors, and French workers. Some of this would have been noticeable before the pandemic and the surge in energy prices.

But the combination of slow-burn, sometimes disruptive supply-side policies and the impact of global shocks on French households have drained Macron’s political capital (as reflected by his poor approval ratings).

Macron did adopt a Draghi-esque “whatever it costs” approach to deal with the pandemic and Russia’s invasion of Ukraine, which deepened France’s cost of living crisis. He spent heavily to help businesses stay afloat and keep employees in their jobs. That, alongside the effects of his earlier reforms, may have helped him eke out a second term in 2022, albeit with a narrower margin.

But while his early reforms and crisis intervention may have led to precipitable improvements for some individuals, it has not been enough to change the net direction of economic sentiment toward his presidency or cushion the negative effects of his agenda or shocks overall.

The Gilets Jaunes protests in 2018 — triggered by an attempt to raise fuel levies — highlighted tensions early on. The raising of the retirement age in 2023 only added fuel to the fire. Indeed, Macron’s supply-side agenda, alongside the experience of the pandemic and cost of living crisis, has left him open to accusations of being “a president of the rich”.

Take France’s household confidence. It has spent more time below its long-term average during Macron’s presidency than above it. That is, in part, due to unprecedented shocks.

Macroniacs might point to Sarkozy and Hollande’s presidencies, in the aftermath of the financial crisis, when the French were even more consistently downbeat. But, as behavioural scientist Daniel Kahneman, who passed away earlier this year, noted: the “remembering self” evaluates the past based on the “peak intensity” and “the end”. The difference is between the very low lows of the cost of living crisis in 2022 and the rising but still low confidence of today.

What about business? Arguably, considering the economic shocks, business confidence has kept relatively buoyant. That may partly be down to the ex-investment banker’s business-friendly reforms and approach, noted above (which also included abolishing a wealth tax and easing corporation tax). The business outlook bounced back quickly after the pandemic and even now remains close to its long-term average.

But the wealthy, investors, and entrepreneurs are not the only voters. Indeed, overall, French households’ outlook for their living standards is worse than when Macron’s first term started. And the lows reached have been among the weakest in half a century. Nobody can legislate for the global shocks faced in the last few years, but Macron perhaps did not have enough of an eye on the cumulative effect of his existing agenda across the electorate.

The conclusion? It is true that Macron’s well-meaning supply-side agenda was, in part, eclipsed by external shocks. But it is not entirely clear that even in the absence of these shocks, the president has had enough of a grasp on economic vibes to retain the political capital he has needed to maintain his long-term project.