OAs the UK, US and much of the EU grapple with a cost of living crisis exacerbated by Russia’s invasion of Ukraine, in France the “tariff shield” of the President Emmanuel Macron is helping to contain rising prices.
Inflation there hit 4.5% in March, and while up from 3.6% in February, it remains one of the lowest rates in the industrialized west and well below 6.2% from the UK, 7.3% from Germany, 9.8% from Spain and 11.9% from the Netherlands. . Last year’s decision to limit the amount by which France’s largely state-owned energy companies could raise prices has benefited consumers and relieved some of the inflationary pressure on industries that rely on electricity. gas and electricity.
In France, where about two-thirds of electricity comes from Electricité de France’s nuclear power plants, the electricity component of inflation has increased by 4% over the past 12 months, but by more than 27% on average in the euro area in general.
Yet in the first round of the presidential election next Sunday, Macron will face criticism from left and right for soaring diesel prices, which have hit the rural poor, and for his attempts over the past five years. previous attempts to end decades of low growth with a string of business-friendly policies.
The recent outrage over his spending of 2.4 billion euros on consultants since taking office, including 1 billion euros with McKinsey of the United States, is another issue that is making headlines, drowning his impressive economic record and eroding its lead in the polls.
By most economic criteria – national income, business investment, consumer spending, labor supply and rising prices – France is at or near the top of the wealthy nation pack. Contrary to most forecasts, its economy recovered last year to 1% above pre-pandemic levels. The UK is still 0.1% below.
Business investment is up in France but down in the UK. Labor shortages there are confined to discrete corners of the economy, thanks to the expansion of a German-style apprenticeship scheme that the UK government has promised but has yet to deliver. implemented.
UBS economist Felix Huefner said: “The exceptional performance of the labor market has been a huge surprise.”
More people are working in France than before the pandemic, while in the UK around 500,000 people, mostly over the age of 50, have left the labor market, exacerbating shortages.
Daniela Ordonez of Oxford Economics credits better-funded and targeted financial support: “It meant the French kept buying big-ticket items while other countries stopped.”
The performance gap may seem small – the number of people working or looking for work is 1% higher in France than in 2019 (and 1.5% lower in the UK). But Huefner says an increase in the number of workers during the pandemic has helped keep French wages in check – and business costs down.
Philippe Aghion of the Insead business school in Fontainebleau indicates that 1.2 million jobs were created between 2017 and 2021, “and not just any jobs – the proportion of long-term and long-term jobs has increase”.
Temporary contracts, especially for young workers, were common after nearly two decades of restrictive labor laws – notably the 35-hour week, which dates from February 2000. Agency workers, contractors and trainees are become as common in France as in the UK, as companies tried to avoid the costs of permanent employment.
Aghion was one of Macron’s three economic advisers when he first ran for president. He says the president’s cap on labor court costs has been a game-changer, prompting big companies to hire more full-time workers.
The apprenticeship and training reforms have been another seismic boost, he says: “In France, we were very top-down, but today we are more bottom-up, allowing workers to negotiate solutions with the businesses. Training is no longer decided by the unions; the workers choose what to do, as they do in Germany.
Addressing the Observer Last week, Cédric O, France’s secretary of state for the digital economy and a close ally of Macron, said the president’s tax and labor law reforms and his understanding of small business concerns had played a role. important: “He understands and believes in entrepreneurs. We are now halfway to creating the business ecosystem that we need.”
Ordonez fears that much of the money spent by Macron during the pandemic has driven the national debt from less than 100% to 115% of national income in two years.
Earlier this year, the Governor of the Banque de France, François Villeroy de Galhau, warned election candidates that proposals for tax cuts and new spending were unaffordable: “We cannot let our public finances deteriorate further.
Macron has already committed more than 60 billion euros to a recovery fund, alongside 40 billion euros from the EU, to provide the backbone of public investment over the next two years.
But Ordonez is among those who argue that, so far, the Macron government has distributed borrowed funds wisely. “The money is being spent to restructure the economy and free businesses from historically high taxes,” she says.
“Increased investment and job creation will pay dividends.”