WIn France, while the UK, US and much of the EU are gripped by a cost-of-living crisis exacerbated by Russia’s invasion of Ukraine, President Emmanuel Macron’s “tariff protection” is helping to contain rising prices.
Inflation there hit 4.5% in March and, although up from 3.6% in February, it remains one of the lowest rates in the industrialized west and well below 6.2% in the UK, 7.3% in Germany, 9.8% in Spain and 11.9% in the Netherlands. A decision last year to cap the amount by which France’s largely state-owned energy companies could raise prices has benefited consumers and taken some of the inflationary pressures off gas and electricity-dependent industries.
In France, where around two-thirds of electricity comes from Électricité de France’s nuclear power plants, the electricity component of inflation has risen by 4% over the past 12 months, but by more than 27% on average in the eurozone in general.
But in the first round of next Sunday’s presidential election, Macron will be criticized from left and right for driving up diesel prices that have hit rural poor and for trying to contain decades of low prices over the past five years Ending growth with a string of pro-business policies.
Recent outrage over his €2.4 billion in consulting spending since taking office, including €1 billion for McKinsey in the US, is another headline-grabbing issue, drowning out his impressive economic record and eroding his lead in the polls.
On most economic measures – national income, business investment, consumer spending, labor supply and rising prices – France is at or near the top of the rich nations. Contrary to most forecasts, its economy rebounded last year to 1% above pre-pandemic levels. The UK is still 0.1% below.
Business investment has risen in France but fallen in the UK. Labor shortages there are confined to isolated corners of the economy thanks to the expansion of a German-style apprenticeship scheme, which the UK government has promised but has yet to deliver.
UBS economist Felix Hüfner said: “We were very surprised by the extraordinary development of the labor market.”
More people are working in France than before the pandemic, while in the UK some 500,000 people, most over 50, have left the labor market, exacerbating shortages.
Oxford Economics’ Daniela Ordonez credits better-funded and more targeted financial support: “It meant the French continued to buy high-priced items when other countries stopped.”
The difference in performance may seem small – the number of people working or looking for work is 1% higher in France than in 2019 (and 1.5% lower in the UK). But Huefner says an increase in worker numbers from the pandemic has helped keep French wages under control — and business costs down.
Philippe Aghion of Insead Business School in Fontainebleau says that 1.2 million jobs were created between 2017 and 2021, “and not just any jobs – the share of long-term, permanent jobs has increased.”
Fixed-term contracts, particularly for younger workers, were common after nearly two decades of restrictive labor laws – not least the 35-hour work week that came into effect in February 2000. Temporary workers, contractors and trainees became as common in France as they were in Britain. as companies tried to avoid the costs of permanent employment.
Aghion was one of Macron’s three economic advisers when he first ran for the presidency. He says the president’s cap on labor court costs was a game changer and gave big companies an incentive to hire more full-time workers.
Apprenticeship and training reforms have been another seismic push, he says: “In France we used to be very top-down, but nowadays we’re more bottom-up and allow workers to negotiate solutions with companies. The trade unions no longer decide on training; Workers decide what they do like they do in Germany.”
Speaking of observer Last week, Cédric O, France’s secretary of state for the digital economy and a close Macron ally, said the president’s tax and labor law reforms and his understanding of small business concerns played an important role: “He understands and believes in entrepreneurs. Now we are halfway to creating the business ecosystem we need.”
Ordonez fears that much of the money Macron has spent during the pandemic has pushed the national debt from under 100% to 115% of national income in two years.
Earlier this year, Bank of France governor François Villeroy de Galhau warned election candidates that proposals for tax cuts and new spending would be prohibitive: “We cannot allow our public finances to continue to deteriorate.”
Macron has already pledged more than €60 billion to a recovery fund, along with €40 billion from the EU to provide the backbone of public investment over the next two years.
But Ordonez is among many who argue that Macron’s government has wisely allocated previously borrowed funds. “The money will be spent to restructure the economy and free companies from historically high taxes,” she says.
“More investment and job creation will pay off.”