New President, New Reforms

Newly elected French leader Emmanuel Macron won the French presidency on a pro-business, pro-eurozone platform. However, an election of this magnitude rarely leads to consensus in government. As Macron’s proposed reforms began to take shape, his poll numbers dropped.

Nevertheless, French business leaders remain positive. For many years, they faced elected officials who had little experience outside of public service. Macron, on the other hand, is all too familiar with the world of business. Knowledge of financial systems and proficiency in the English language made him a great candidate.

While investors are more confident than ever before, they still must remain cautious, knowing that the French system is powerful and slow to change. Among the many reforms discussed during Macron’s campaign, two would have a particularly noticeable effect; labor market reform and a new budget plan.

Unveiled by prime minister Edouard Phillippe, the labor reform of employment is both an economic necessity and a political test. France’s structurally high unemployment, currently 9.5%, is well above levels in neighboring countries.

Through the summer, early talks between employers and workers unions raised hopes of successful reform. The reforms presented by Mr. Philippe, describe a balanced package and represent an important step that should put France back in the top tier of European labor legislation, thus encouraging firms to continue hiring new employees.

The budget plan will be more of a challenge. The French government is committed to meeting its EU obligations on the size of the deficit, a pledge coming from Europe’s highest-spending country. Keeping the pledge is essential if the nation is to achieve the credibility it needs to gain German support and boost growth in the eurozone.

“Any growth strategy moving forward must focus on competitiveness and investment” said Keith Knutsson of Integrale Advisors.

In the past three months, the French economy has been attracting investors from around the world. Macron’s proactive diplomacy has been well-received, both at home and abroad.