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France hurtled into a new political era on Sunday, when voters returned a national assembly in which no party holds a majority. It was an unexpected rebuff to President Emmanuel Macron who had just won a second term in power. Having just spent a few days in Paris, here are some of my reflections on where the country finds itself — economically and politically.
Like everywhere else, the big economic challenge is the cost of living crisis in a situation of slowing growth — indeed, the French economy contracted in the first quarter of this year. Some expect a recession by the end of 2022.
If rising prices were behind the government’s disappointing election result, it could be forgiven for feeling undeservedly punished by voters. On some measures the French economy is doing exceedingly well: unemployment is historically low and labour market participation is at a record high. A lot of this should be credited to the labour market policies that were the great achievement of Macron’s first mandate (reforming labour law, boosting apprenticeships for the young, spending on active labour market measures). But the government is a victim of its own success; if the problem of joblessness seems largely solved, voter attention has moved elsewhere.
Even the cost of living is going up less in France than in other countries — it had the lowest headline and core rates of consumer price inflation in the eurozone in May (5.8 and 3.4 per cent). This, too, is due to policies — in particular a heavy-handed cap on household energy prices below market level, at a very high cost to the public finances (there is also a fuel discount). I have written before about why a better approach would be to make direct support payments to households that need help, while letting the market price mechanism do its job. To be fair, France does this too (through its chèques énergie) and the temptation to go against the grain of the market is hardly unique to the country. And it is understandable that politicians may choose what works politically over what makes sense economically.
Except that, like the success on jobs, the money spent on keeping energy prices low may not have worked politically — at least not enough to deliver a parliamentary majority. (Although it possible Macron’s parliamentary alliance would have done even worse in the election had not enough people recognised its economic achievements.)
In any case, a new cost of living package is expected; the government has promised one in the campaign and was scheduled to pass one to extend current support provisions in the next few weeks. That is likely to be the first casualty of a splintered parliament (unless it is Prime Minister Élisabeth Borne, whose longevity in office is now an open question). One French economist remarked to me that you can always get politicians to agree on spending more money. But there is so much acrimony against Macron that even this seems hard.
This brings us to the politics proper. It is quite a moment for the Fifth Republic and, in particular, for its majoritarian electoral system. Like the UK’s first-past-the-post, the French system of second-round run-offs has tended to favour the big traditional parties and keep challenger parties out of the legislature. This has produced consistent parliamentary majorities — even if sometimes for the party opposed to the president. The lack of a governing majority has raised the question of whether France is now ungovernable.
But both French and outside commentators ought to recognise how much this outcome would be an artifice of an electoral system that generates expectations of absolute majorities — expectations that may be unrealistic in a world where voters do not congregate to two main party groupings. In countries with proportional voting systems, absolute majorities for a single party are unheard of, so coalitions or minority governments are the norm. And in such systems, a result of 38.6 per cent — which is the share Macron’s alliance achieved in the second-round vote — would be a huge victory, especially after five difficult years in power. My own sense is that France has joined the US and the UK in proving how ill-fit majoritarian electoral systems are for the 21st-century political landscape, compared with the proportional systems most of Europe uses.
As the president himself said in a speech to the nation on Wednesday night, Germany and Italy routinely operate without absolute majorities. The question is which of these two examples, if any, ends up guiding him and France’s newly elected parliamentary leaders as they chart a course forward: orderly and committed coalition negotiations as in Germany, or successions of weak governments as in Italy (or indeed France’s own 1950s experience with the Fourth Republic)? The signs are not too promising: “I don’t have a German inclination,” huffed the leader of the rightwing Republicans. But at least options such as a national unity government and case-by-case coalition-building are being discussed, and an awareness is developing that winner-takes-all politics can be a liability for the country.
There are echoes here of the UK’s unruly parliament between 2017 and 2019, which should make French politicians redouble their efforts at cross-party co-operation. The alternative is, as then in the UK, a snap election. Behind all the manoeuvring hovers Macron’s power to dissolve the national assembly at a time of greatest electoral convenience. That is what Boris Johnson did in December 2019. We know how well that went. France should prefer to use this opportunity to build a more collaborative political culture.
Today EU leaders are expected to make Ukraine a formal candidate for membership of the bloc. This has depended on France relaxing its resistance to enlargement, which it long saw as being in tension with its aim of making the EU more decisive and forceful. In my FT column this week, I argue that Ukraine shows these goals are not in tension. Quite the opposite: a genuine commitment to getting Ukraine ready for membership is what will most strengthen the EU’s ability to shape the world stage.
Robert Armstrong and Ethan Wu have an excellent discussion (in their Unhedged newsletter, which is well worth signing up to) of how much falling stock and crypto prices may reduce US economic activity — as much as 2 per cent in their back-of-the-envelope calculation.
Mike Rogers, a former member of the US Congress, calls for a digital Bretton Woods — norms to govern the digital global economy. Without this, he argues, the rules will be shaped by China, whose new electronic currency is designed to unseat the US dollar’s global dominance.
The Washington Post explains why, at a time of record-high prices for petrol products, US refineries are closing down. Are there any experts among Free Lunch readers who can tell us what the situation is in the European refinery business?