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Reflections on France after the elections

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France stormed into a new political era on Sunday, as voters returned a national assembly in which no party has a majority. It was an unexpected rejection of President Emmanuel Macron, who had just won a second term in power. I just spent a few days in Paris and here are some of my reflections on where the country is – economically and politically.

As everywhere else, the great economic challenge is the cost of living crisis in a context of slowing growth – indeed, the French economy shrunk in the first quarter of this year. Some expect a recession by the end of 2022.

If rising prices were the cause of the government’s disappointing election result, voters could be forgiven for feeling unfairly punished. The French economy is doing exceptionally well in a number of areas: unemployment is at an all-time low and the employment rate is at an all-time high. Much of this can be attributed to the labor market policies that were the major achievement of Macron’s first mandate (labour law reform, boosting youth apprenticeships, spending on active labor market measures). But the government is a victim of its own success; if the problem of unemployment seems largely resolved, voters’ attention has shifted to another area.

Even the cost of living rises 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 percent). This too is due to policy measures — in particular a heavy-handed ceiling on household energy prices below market levels, at a very high cost to public finances (there is also a fuel discount† I have written before why it would be better to make direct aid payments to households in need of help, while letting the market price mechanism do its work. To be fair, France does this too (via its energy checks) and the temptation to go against the market is not unique to the country. And understandably, politicians can choose what works politically rather than what makes economic sense.

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 secure a parliamentary majority. (Although it could be possible that Macron’s parliamentary alliance would have fared even worse in the election if not enough people had recognized the economic performance.)

A new housing costs package is in any case expected; the government promised one in the campaign and was scheduled to approve one to extend current aid arrangements in the coming weeks. That’s probably the first casualty of a fragmented parliament (unless it’s Prime Minister Élisabeth Borne, whose long term in office is now an open question). A French economist remarked to me that you can always get politicians to spend more money. But there is so much bitterness against Macron that even this seems difficult.

This brings us to the real politics. It is quite a moment for the Fifth Republic and especially for its majority system. Like the UK’s first-past-the-post, France’s system of second-round run-offs has tended to favor the big traditional parties and keep challenger parties out of the legislature. This has led to consistent parliamentary majorities, even if at times it was for the party opposing the president. The lack of a ruling majority has raised the question of whether France is now ungovernable.

But both French and outside commentators should recognize how much this outcome would be a trickery of an electoral system that raises expectations of absolute majorities — expectations that can be unrealistic in a world where voters don’t converge into two major party factions. In countries with proportional voting systems, absolute majorities for one party are unheard of, so coalitions or minority governments are the norm. And in such systems, a 38.6 percent result — which is the share Macron’s alliance took in the second round of the vote — would be a huge win, especially after five difficult years in power. My own feeling is that France has joined the US and UK in proving how bad majority systems are for the 21st century political landscape, compared to the proportional systems most of Europe uses.

As the president himself said in a speech to the nation on Wednesday evening, Germany and Italy routinely operate without absolute majorities. The question is which of these two examples will ultimately guide him and France’s newly elected parliamentary leaders in charting a course forward: orderly and committed coalition negotiations as in Germany, or succession of weak governments as in Italy (or even France’s own years). fifty experience with the Fourth Republic)? The signs are not too promising: “I have no German inclination”, gasped the leader of right-wing Republicans. But in any case, options such as a government of national unity and coalition building are being discussed on a case-by-case basis, and a realization is developing that the politics of winning everything can be a liability to the country.

There are echoes here of the UK’s unruly parliament between 2017 and 2019, which should have forced French politicians to redouble their efforts at cross-party cooperation. The alternative, as then in the UK, is early elections. Behind all the maneuvering hovers Macron’s power to dissolve the national assembly at a time that suits the electorate best. Boris Johnson did that in December 2019. We know how well that went. France would rather take this opportunity to build a more collaborative political culture.

other readables

  • Today, EU leaders are expected to make Ukraine a formal candidate for membership in the bloc. This was conditional on France’s easing of its opposition to enlargement, which it long viewed as a field of tension, with the aim of making the EU more agile and decisive. In my FT column this week, I argue that Ukraine shows that these goals are not at odds. On the contrary, a genuine commitment to prepare Ukraine 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 worth checking out) sign up to) of how much falling stock and crypto prices could reduce US economic activity — as much as 2 percent in their back-of-the-envelope calculation.

  • Mike Rogers, a former member of US Congress, is calling for a digital Bretton Woods standards to govern the digital global economy. Without this, he argues, the rules will be shaped by China, whose new electronic currency is designed to negate the US dollar’s global dominance.

  • The Washington Post explains why, at a time of record prices for gasoline products, US refineries to close† Are there any experts among Free Lunch readers who can tell us about the European refinery?

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