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Unrest in France Hinders Macron’s Push to Revive Economy – The New York Times

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Unrest in France Hinders Macron’s Push to Revive Economy

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In his most substantive public remarks on the Yellow Vest protests, President Emmanuel Macron of France offered concessions to low-wage workers on Monday. But he has shown no sign of dropping his overhaul of the French labor market.CreditCreditPool photo by Ludovic Marin
  • Dec. 11, 2018

PARIS — The need to accelerate growth has long been visible in almost every corner of the French economy, from dreary unemployment offices packed with jobseekers to businesses whose financially stretched customers struggle to make do.

President Emmanuel Macron pledged on Monday to change those dynamics by improving the country’s long-term prospects. But his halting response to a month of violent demonstrations by the so-called Yellow Vest movement over social inequality has clouded his efforts for a revival.

Four weekends of mass protests in Paris and in towns and villages across France have hampered economic activity while hurting the country’s image with investors, the government said Monday.

The same day, the country’s central bank trimmed its growth forecast for the fourth quarter to 0.2 percent from 0.4 percent, well off the sluggish pace expected for the year. Businesses have sustained more than 10 billion euros — about $11.4 billion — in damages and lost sales, a figure that will probably grow.

“It’s a catastrophe for business,” Bruno Le Maire, the finance minister, said Sunday as he toured Paris businesses smashed up by rioters. “It’s a catastrophe for our economy,” he added, a point he has continued to press in television interviews and briefings with reporters.

Mr. Macron has helped to fuel much of the current turmoil. Until Monday, he had remained silent for more than a week as he and his ministers crafted a response to a movement that began with anger over a gas tax and grew into a collective outcry over declining living standards and eroding purchasing power.

Even before that, Mr. Macron came off as detached from the average worker’s plight, telling an unemployed gardener in October in a widely seen video that he could find him a job simply by crossing the road.

Moving to douse a restless nation’s anger, Mr. Macron acknowledged on Monday that he had given the appearance of being out of touch with "left behind” France, although he stopped short of apologizing.

He pledged tax cuts and financial support to bolster purchasing power for those having trouble getting by, urged businesses to give employees year-end bonuses, and said the government would help minimum-wage earners with a €100 monthly supplement starting next year.

Mr. Macron’s speech, a prerecorded message just 13 minutes long, was also notable for what he left out.

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Protesters in Paris on Saturday. A month of violent demonstrations has hampered economic growth and hurt France’s image with investors, the government said.CreditStephane Mahe/Reuters

He did not mention changing course on the most business-friendly overhaul of the French labor market in decades. The omission was a signal to investors that, despite the recent chaos, Mr. Macron plans to stick with his strategy for re-energizing Europe’s third-largest economy by pursuing changes that had stalled for more than a decade.

“If he can stay the course on structural reforms, and if the social movement calms a bit with his balancing act, that would be good news,” said Olivier Marchal, the chairman of Bain & Company France.

Mr. Marchal added that those were big ifs. Many of those protesting understand that improving the economy is a long-term project, but their concerns are focused on their monthly effort to make ends meet. On social networks, some protesters said Mr. Macron’s offer fell short.

“There will be a mark left by this episode,” Mr. Marchal said. “And it’s not a given that this will succeed in calming the dissatisfaction of a part of the population.”

Mr. Macron’s mostly unyielding attitude underscores the stakes for France as he eases business regulations to seed dynamism.

He has insisted that painful economic measures must be taken up now to keep France’s deficit within European Union rules. His plans include altering the country’s strict labor code, and making budget adjustments that hit low-income earners and retirees especially hard even as he cuts taxes for wealthy people.

Mr. Macron’s moves since taking office have prompted Amazon, Facebook and many other multinational companies based outside France to promise to create more jobs. But the changes, including a vast new government program meant to enhance skills training for workers and those without jobs, could take years to show results.

The changes to the labor code, which include curbing union power by letting bosses and workers negotiate contracts directly, has angered workers, who think the government wants to strip them of hard-won rights in favor of big business.

It is unclear how the government will pay for the concessions announced Monday. Mr. Macron has lectured leaders of other eurozone countries about the need to keep their budget deficits below the European Union cap of 3 percent of gross domestic product. He must now follow his own advice.

One of the concessions that Mr. Macron made in the face of the protests — scrapping a planned gas tax increase set for next year that initially touched off the Yellow Vest movement — will deprive France’s treasury of nearly €4 billion. Abandoning other taxes that were to be levied on low-income pensioners and workers will most likely cost billions more, economists said.

Mr. Macron also refuses to end a tax break for wealthy citizens that he granted upon taking office. He says the measure was intended to lure money back to France, where it can be invested in French companies. The move has drained more than €3 billion from France’s coffers this year, but there is little evidence that it is having the promised stimulus effect.

Mr. Le Maire, the finance minister, has suggested one way to make up the shortfall: pursuing the taxes that he said Amazon, Apple, Facebook and Google had avoided paying in France for years.

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Protesters in Nantes on Saturday. The demonstrations began with anger over a gas tax and grew into a collective outcry over declining living standards and eroding purchasing power.CreditSebastien Salom Gomis/Agence France-Presse — Getty Images

“If you want to bring money in from somewhere, tax digital companies,” he said in an interview with RTL radio on Monday. “Fight with me so that we can tax digital giants. I wont let this issue drop because it’s time for these companies to pay the taxes that they owe.”

Patrick Artus, chief economist at Natexis Bank, which is based in Paris, said that even if the tax cuts and spending increases Mr. Macron has proposed increase France’s budget deficit, “markets will accept that” as a price for restoring social stability.

Still, the growth slowdown caused by a month of interruptions will make it harder for Mr. Macron to address several major problems.

He has pledged to reduce the France’s stubbornly high unemployment rate, a major source of unrest, from above 9 percent, where it has lingered for nearly a decade. That will be harder to do if the economy, which had already slowed to a 1.8 percent annual pace, continues to cool.

Retailers, including supermarkets and sellers of luxury goods, have collectively lost more than €1 billion, while small and medium-size companies have lost at least €10 billion, according to France’s main retail and business associations.

The agriculture sector is facing over €13 billion in losses, said ANIA, the main industry group, citing four weekends of protests that blocked roads, causing delivery delays and often preventing groceries from reaching stores.

Tourism has also been affected, with hotels recording cancellation rates as high as 25 percent since the protests started last month, compared with the same period last year. American and Japanese tour operators have been advising customers not to travel to France, according to the National Federation of Tourist offices.

Some companies have paused hiring plans. Auchan, a large supermarket chain, said it might not hire 4,000 temporary workers it had planned to employ across France for the holiday season.

The French Economy Ministry said over the weekend that it would provide emergency support for companies affected by the protests in the form of extended deadlines for tax payments, flexible short-term financing from banks and expedited insurance declaration procedures.

Stores that need to make up for lost revenue will be allowed to open on Sundays, something that has been prohibited in most of France by decades-old laws requiring that Sunday be a day of rest.

In the end, the main issue for France is not the short-term cost from the demonstrations, said Mr. Artus, the economist.

“It’s whether Macron will keep the reforms going,” he said, adding: “What’s important is to maintain the attractiveness of France.”

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