Emmanuel Macron faces a complex economic juggling act

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Less than 24 hours after Emmanuel Macron clinched his second term as president, his government had stepped up its response to one of the main concerns of those who voted for his rival Marine Le Pen: the surging cost of living.

“No matter what happens we will do more to protect the French from spiking petrol prices,” Bruno Le Maire, Macron’s economy minister for the past five years, told Franceinfo radio on Monday, adding that existing fuel rebates might be replaced by the summer by more targeted ones for motorists struggling with high costs at the pump.

The fresh assurances highlighted one of the more pressing problems facing France’s economy — problems that are likely to overshadow the opening months of Macron’s second term and push the government into spending more.

The public finances are already under pressure after the Covid-19 pandemic swelled the budget deficit to 6.5 per cent of output last year, and the government has already offered €25bn of emergency relief on energy prices. But Macron will be conscious of the fact that hikes in living costs fed into strong voter backing for the far right. It presents an immediate challenge for a president who, despite winning a respectable 58.5 per cent of the vote, secured victory in an election where abstentions were at their highest level for 50 years.

There are a host of more structural challenges facing Macron too.

Top of the list are reforms of the workforce — including an overhaul of the pensions system, which would raise the retirement age from 62 to around 65. “Without this reform, all the other things that have been promised on the salaries for teachers, on healthcare and hospitals, on rural development, on industry, on the energy transition will not be done — there wouldn’t be the money to do them,” Natixis chief economist Patrick Artus said.

France spends close to 14 per cent of its economic output on pensions, more than most of its European neighbours. But the latest proposals caused a backlash on the campaign trail, sparking criticism from voters and political rivals as well as labour unions.

Macron already shelved a first stab at restructuring the system in the run-up to the election. The chances of pushing through further reforms partly hinge on legislative elections in June and on the president’s ability to put together another majority.

Tackling France’s low labour participation rate, which drags on state revenues and speaks to the long-running challenge of developing a more highly skilled workforce, should also be a priority. “We know what must be done,” Artus said, adding that further overhauls of the education system would be needed. “The problem is that this is all drowned out by many other demands.”

Businesses — which have clamoured for further cuts to so-called production taxes, based not on their profits but on turnover, staff or property — are also under stress from higher inflation.

Though inflation is lower than the eurozone average, soaring prices of raw materials and rising energy costs have hit French builders, car manufacturers and aviation companies hard. Industry has also been suffered from the snarling up of global supply chains.

While France’s economic rebound has been stronger so far than that of other large European countries, Russia’s invasion of Ukraine could still cause bumps in the road. “Chief executives are crazy worried,” said one banker in Paris. “They fear a looming economic crisis from the fallout from sanctions from the war.”

Macron must also tackle the overhaul of the publicly controlled power company EDF, which will require the blessing of Brussels over state-aid rules. Attempts to restructure EDF ran aground last year. But the president has signalled the indebted group could be fully nationalised as a first step. Analysts and sources at the company expect talks over agreeing a new regulatory framework for the nuclear sector to pick up again post election.

There is also the broader challenge of mapping out a viable energy future for France. Plans are afoot to built at least six new nuclear reactors.

Macron has already begun rolling out an EU-backed €100bn scheme to develop new sectors such as hydrogen, supporting the transformation of buildings to make them more energy efficient and creating jobs in the process, and funding incentives to attract more industrial investments in the country.

Despite the full in-tray facing the president, many business leaders — even those who are less enthused by Macron on a personal level — were breathing a sigh of relief on Monday, fearing market mayhem and an implosion of the EU if Marine Le Pen had won.

“Everyone’s feeling a bit better today,” said one executive at an industrial company on Monday, adding that politics had “taken their normal place again”.

Few are sanguine about the task at hand, however. Macron, they know, will have to pull off a complex juggling act. “It’s a much more complicated agenda than five years ago,” said an executive from the finance sector. “His win is fundamentally good news for business, and for Europe. But there are a lot of uncertainties and fears of social unrest.”