How the Outcome of the French Election Will Impact Europe

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Wharton's Joao Gomes and HEC business school's Olivier Chatain discuss the results of the recent French election.

Emmanuel Macron won a resounding victory over National Front far-right candidate Marine Le Pen in the French presidential election Sunday, which puts to rest for now the threat of an exit by France from the European Union. The vote — 66% for centrist Macron to 34% for Le Pen — proved a stronger victory than many analysts and polls had projected.

The decisive result favoring Macron turned aside the idea that Le Pen and her party might be gaining enough strength to surprise with an outlier victory, such as occurred with the vote favoring Brexit and the win by President Donald Trump in the United States. However, the election did mark the largest number of votes her party has ever won. Le Pen favored ditching the euro and creating stricter business-protectionist measures and a large reduction in immigration. (Shortly before the election, Gérard Araud, the ambassador of France to the U.S., gave a talk at Wharton about some of the factors leading to a rise in populism and nationalism in Europe and the U.S.)

Macron, at 39, was the youngest presidential candidate ever to run in France. His lack of strong backing by any major political party has analysts looking ahead to Parliamentary elections next month for clues about France’s future direction and Macron’s ability to shape policy.

His victory was the third-straight defeat for far-right populist parties in Europe, following losses in the Netherlands in March and in Austria last December.

To gain perspective on what the Macron victory means to France and the EU, Knowledge@Wharton spoke with Wharton finance professor Joao Gomes and Olivier Chatain, who is a professor of strategy and business policy at the HEC Paris business school, and also a senior fellow at Wharton’s Mack Institute for Innovation Management. They appeared on Wharton Business Radio on SiriusXM channel 111. 

Immediately, Uncertainty Ahead

Macron’s victory raises more questions than answers, at least for now. “It’s the start of two months of uncertainty,” said Chatain, referring to the period until parliamentary elections in June. Macron must either secure a majority in the 577-member National Assembly or put together a workable coalition in order to implement his programs, he added.

“To come up with 289 members for [an absolute] majority in parliament from a party that did not exist up to two years ago will be challenging,” Gomes said. He also wondered how Macron would ensure the enduring loyalty of his legislators to implement the reforms, some of which will be politically challenging.

Chatain said he would watch for reforms that Macron may be able to push through in the summer. “July and August are traditionally when you get reforms passed in France, when most people are busy doing something else, namely vacationing.”

According to Gomes, Macron’s victory does not automatically translate into a mandate for the economic reforms platform he campaigned on. “This is more like a negative majority rather than an outright, large mandate for Macron,” he said. “I don’t think this is an overwhelming endorsement of a candidate that is beloved by the French people.”

Macron is not seen by the French people as one who will bring better solutions than his predecessors, said Gomes. “He’s just the best of a bunch of poor alternatives.” Against that backdrop, he doubted “the ability of Macron and his prime ministerial choice to execute on specific pro-growth reforms.

“July and August are traditionally when you get reforms passed in France, when most people are busy doing something else, namely vacationing.”–Olivier Chatain

Pushing Reforms

Labor reforms are high on Macron’s agenda, as they have been for several previous French administrations, said Gomes. Macron began the process of labor reforms when he was the minister of economy, industry and digital affairs (2014-2016). He couldn’t take that forward as much as he would have liked because of conflicts between him and the outgoing president, Francois Hollande, said Chatain. Now, he expected trade unions to put up stiff resistance to the reforms Macron wants to implement.

Gomes said he would look for a “strong growth push” for France from Germany and elsewhere within the Eurozone, or opportunities for France to boost its exports. France has been traditionally strong in exports of services, noted Chatain. Here, he expected Macron to aggressively pitch France as an attractive destination for London-based financial services firms to relocate their operations and headquarters after Brexit, the British decision to exit the European Union.

“I think Macron will be pretty shameless at attempting to [persuade companies to move across the English Channel],” said Chatain.

It helps that Macron has support among “people who see themselves as entrepreneurial, and educated people who believe that what they can do for their economic well-being will make a difference [to the French economy],” said Chatain. He added that as Macron tries to tap into that “entrepreneurial optimism,” he would also need to focus on changing the institutional frameworks to make his pathway easier. Macron would also need to address “perceptions that France is bad place to do business,” and that its taxes are too high and regulations too onerous, said Gomes.

Rejuvenating Europe

Macron’s pro-Europe stance means that “people in Brussels are probably the happiest right now,” said Gomes. “This is their opportunity to rejuvenate Europe and the European dream.” At the same time, he sensed “some nervousness in London,” especially about the negotiation stance that Brussels might take on Brexit “with this renewed energy coming out of the presidential election in France and parliamentary elections in Holland.”

“This is more like a negative majority rather than an outright, large mandate for Macron.”–Joao Gomes

Chatain saw Macron’s victory ensuring that the EU prevails for at least another five years. The forthcoming parliamentary elections in France and the German federal election in October “will not create much upheaval in the EU,” he predicted. Instead, he was more worried about the outcome of the Italian general election in 2018 and the worsening Greek debt crisis.

For U.S.-France relations, Macron’s victory at first sight doesn’t offer much optimism, said Gomes. Trump and Macron differ on several issues such as climate change and trade issues, he noted. However, he expected them to find common ground in fighting terrorism. Chatain expected continuity in U.S.-France relations on terrorism issues and foreign affairs in general. 

Terrorism and immigration were big issues in the French presidential election. Macron has maintained that instead of closing borders, France must focus on better coordination between its government agencies to control the movement of people, Chatain noted. Macron is a staunch defender of the December 2015 United Nations-engineered Paris accord on climate change. Chatain expected Macron to use “soft diplomacy or behind-the-scenes arguments trying to explain to the U.S. that it has nothing to lose by remaining a signatory to the Paris accord.”

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