Macron, the Budget and the Yellow Vests

Placating the protesters could mean violating an EU budget rule – and compromising France’s leadership on the Continent.

By Ryan Bridges  

Emmanuel Macron is facing some serious problems, and they don’t all involve yellow vests. The past decade has been the worst for France’s economy in at least 60 years. Annual gross domestic product growth has exceeded 1.2 percent only three times since 2007. Unemployment in the wake of the 2008 global recession and European debt crisis didn’t peak until 2015, and it had fallen only to 8.9 percent by October 2018, giving France the fourth-highest unemployment rate in the European Union. (Youth unemployment was much higher at 21.5 percent.) But the biggest problem of all – one that’s been clear since 1990 and worsened since 2008 – is that France is falling behind Germany, its closest partner in the European project. The French president’s greatest challenge, and much of the motivation behind his drive for reforms at both the domestic and European level, is closing this gap.
Macron’s Economy
Macron, who served as economy minister from 2014 to 2016, ran in the 2017 presidential election as a change-maker. He made all the usual promises – to restore economic growth, create jobs, invest in the future – and to his European partners, he promised to do it all while leading the first French government since 2007 to obey EU budget rules. In his first 19 months, he passed extensive labor market reforms, making it easier for employers to dismiss workers, streamlining contract negotiations and beefing up vocational training programs. He cut taxes, mostly to the benefit of the wealthy and corporations. In search of new revenue, he instituted taxes on cigarettes and fuel.

All the while, his approval ratings tumbled from the mid-50s to the mid-20s. His labor reforms, in particular, set off waves of strikes and street protests. But it was the fuel tax that really galvanized his critics. The “gilets jaunes,” or yellow vests, movement was initially a rural phenomenon, but rapidly broadened to include the full spectrum of Macron’s critics. In early December, after the third weekend of yellow vest protests, the government delayed implementation of and then outright canceled the fuel tax. But the protests continued, and after the fourth weekend, Macron gave a televised address offering concessions (including a minimum wage hike and further tax relief). By the fifth week, however, the protest movement had visibly lost steam, and this past weekend its numbers further dwindled.

Macron vowed to stay the course on his overall reform agenda, but he did so at the cost of breaking his pledge to obey EU budget rules. The EU’s Stability and Growth Pact requires that governments maintain an annual budget deficit of less than 3 percent. The 2019 French budget was already teetering on the edge, at 2.8 percent, but the concessions to the yellow vests will push the deficit to at least 3.2 percent. While it’s true that France has never much cared about this rule, Macron wanted to be a different kind of French president.

Friends and Rivals
Macron has framed himself as Europe’s defender against euroskepticism, populism and nationalism. It doesn’t help his image as the hero of Europe if his own government steamrolls Brussels on its domestic budget.

The more important dilemma, though, is at the heart of European integration. A primary reason for the creation of the European Coal and Steel Community, the EU’s predecessor, was to tether West Germany to Western Europe, and especially to France. For decades, France and West Germany’s economic output tracked closely with one another. But since the reunification of West and East Germany in 1990, Germany has been off the tether. The gap narrowed a bit around the introduction of the euro, when Germany was dubbed “the sick man of Europe.” But then came Chancellor Gerhard Schroeder’s Agenda 2010 structural reforms, which were not unlike the reforms Macron is targeting now. Today, the difference in size between the German and French economies is the largest it’s been since at least the launch of the European Economic Community in 1958. (Reliable data from before that time is hard to come by.)


France’s strategy in Western Europe, as it has been since World War II, is to preserve a balance of power with Germany through integration. Macron’s original goal was to create a fiscal union and eurozone finance minister, hoping to put centralized authority in a figure more amenable to French control. German Chancellor Angela Merkel quickly tempered those ambitions, and in the end, Merkel and Macron settled on a small shared budget for eurozone members (much smaller than France had hoped and lacking the ability to assist countries during downturns), a larger backstop for European banks, and little else.

As Europe’s largest economy, Germany is the de facto gatekeeper of eurozone reform. Without Berlin’s buy-in, Paris’ proposals will go nowhere. But getting Berlin on board is an uphill battle. (In late 2012, during the eurozone crisis, a eurozone budget was suggested. Merkel shot the idea down with the question, “But where is the money supposed to come from?”) Life is pretty good for the Germans at the moment, and it’s not easy to convince people who are mostly content that things need to change. Moreover, the Germans know that when their government assumes more of the European burden, citizens disproportionately bear the cost. For Macron, securing German support was always a difficult prospect; but until France instituted structural reforms and demonstrated what Berlin deemed sufficient respect for EU rules, winning Germany’s support would be impossible.

To be sure, the Germans need the eurozone to survive every bit as much as the French do. Should a recession send Europe spiraling into another crisis, Berlin would almost certainly come to the rescue as it did before. But German politics have changed a good deal since 2012, with the rise of the euroskeptic Alternative for Germany party (now Germany’s third- or fourth-largest party, depending on the poll) and concomitant shift to the right within its largest party, the Christian Democrats. Germany’s reluctance to put up its money last time, and the conditions it attached to its help, did tremendous damage to the image of liberalism and democracy in the EU from which the bloc still has not recovered. It’s not a cycle Paris wants to relive, especially given that France could someday find itself in need of aid. Germany wouldn’t try with France what it did with Greece, but neither would it give a no-strings-attached bailout – and that’s assuming France could be saved.

So, if he wants to enact eurozone reforms before the next crisis hits, all Macron needs to do is the near-impossible. By the end of Germany’s Agenda 2010 reforms, the country had broken the now-sacrosanct 3 percent deficit rule for five straight years. Germany’s budget deficit soared to 4.18 percent; France’s projected 2019 deficit of 3.2 percent is ascetic by comparison. Now that the yellow vest protesters have seen their efforts pay off, and with Macron’s tanking approval numbers, France’s compliance with the rule may not be possible. The biggest obstacle to France’s ability to get back on the right side of the rules, however, is the European economic slowdown and impending recession.

The momentum the Macron government had built up in domestic reforms was impeded by the yellow vests. That means Germany’s support for eurozone reform will not be forthcoming – and it was always a bit of a long shot that Germany, with of its own domestic political instability, would willingly go along with Macron’s reforms anyway. France will keep playing catch-up, while Germany keeps writing the rules.

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