The recent election of Emmanuel Macron in France was seen as a major boon for the EU. Following the Brexit referendum, there were immediate concerns of a domino effect, with the potential election of anti-EU populists in other countries. But the elections so far in France and the Netherlands have resulted in centrist leaders, and Germany looks set to follow suit with Angela Merkel’s re-appointment.
With a return to stability, the desire now is to enact meaningful change to strengthen the EU and its economy. Macron is a staunch reformer, and is planning a major overhaul of economies on the national and international level. Merkel meanwhile must negotiate a long transition to a more digital driven economy, while acting as de facto leader of Europe. The way the two interact may decide not just the future of their own countries, but the state of the EU going forwards.
Emmanuel Macron owes part of his election victory to not being Marine Le Pen. But it’s also important to acknowledge both his genuine base of support - he won 24% in the first round - and the general desire for change within France. Former President Hollande left power with record low approval ratings, due to unemployment having barely fallen in his five-year tenure.
Macron is considered to be socially liberal, but economically more conservative. He is a former investment banker, and as Minister for Economy, Industry and Digital Affairs he forced through a hotly contested reform package, making it easier to fire employees. He also backed the El Khomri law targeting severance payments and overtime, which inspired extensive protests.
His plans are to continue this approach wholesale. Macron’s platform included a promise to privatise unprofitable government assets, scale back over-generous government pensions, reduce the power of unions, and finally extend the prized 35-hour working week. Having supported the La French Tech movement in his previous role, he’s also expected to prioritise the thriving digital economy, making France a more palatable destination for startups.
France is now Europe’s second largest economy, and an increasing target for investors in fields such as precision engineering, chemical production and green technology. But it has also suffered in the past from perceptions of business unfriendliness, ranging from the process of starting a company to the higher than average tax rates. Macron will hope as much as anything to dispel this idea, lowering corporation tax to 25% while championing the French entrepreneurial spirit.
He will however face substantial obstacles in trying to enact his manifesto. The upcoming Parliamentary elections will decide how many of his ‘La République En Marche!’ candidates are actually elected. If he does not secure a substantial majority - and he is not widely expected to - he may struggle to enact the more contentious policies. Even making changes such as allowing people to work certain Sundays was a struggle as Economy Minister, and that was as part of the leading party.
Opposition parties will also recognise however that Macron needs to succeed. If his Presidency is undercut by similar failures to the previous government, it will embolden Marine Le Pen’s Front National. Macron may also find support in key allies such as Germany, who would benefit from a stronger France. They are a key export destination as well as a political partner, and could shoulder some of the burden of EU contributions.
That said, Germany’s approach to Macron might be measured at first. Macron has a particular passion for EU reform; specifically to the Eurozone and the way debt is divested. This is something Germany would rather leave alone, given that they would likely be the big loser in any attempt to fix the debt crisis.
Angela Merkel has already served longer than any U.S. President is allowed to, but her support seems as solid as ever. Business confidence in Germany is currently at a record high; the country is running a surplus of 8%, and demand for exports is rising around the world. Opposition leader and former EU Parliament President Martin Schulz has gained some ground, and would arguably be a better partner for Macron, but there seems little reason to doubt Merkel.
Germany has traditionally not been much easier for businesses to set up in than France. Business regulations are stringent, and the process of setting up a business involves more steps than most leading European nations. Steps have been taken to address this, however, such as the UG limited company structure (or ‘mini-GmbH’) and the move to an online registration process. With Berlin’s startup community bumping against the regulatory ceiling, making things easier for startups would seem like a popular avenue for reform.
Much of Merkel’s focus however will be on enacting what has long been called Industrie 2.0 - the movement from purely hardware focused manufacturing to software and services. This involves the digitisation of the manufacturing process and small businesses, also known as the Mittelstand, where family-owned enterprises make up 98% of German business.
But it’s also crucial for Germany to move towards creating its own software. Germany lacks a major equivalent to Google, Apple or Microsoft, and there are worries that the car industry in particular could end up outsourcing many features to foreign developers.
Publically, Merkel’s early politicking has been around the Euro and the trade surplus. Growth is at 0.6%, and Germany’s exports have been thriving recently; the 7% rise on the start of last year represents an increase of around 20 billion euros. But other nations have pointed to Germany’s stockpiling of money as a reason to scale back imports, and become more protectionist. Merkel has opted to blame the European Central Bank, accusing them of keeping the Euro so low that Germany cannot help but benefit, at the cost of countries in and outside Europe.
To address this, it’s widely expected that Merkel will put the current head of the Bundesbank up for election to the ECB. This German dominance of the EU’s fiscal engine would not please some countries, who already accuse Germany of favouring its own interests. But Germany remains the leading light in terms of EU expansion and investment, and will want that to continue in the face of recent threats. Raising the value of the Euro would help other countries that import more than they export, and allow them to avoid significant Eurozone reforms.
Both Germany and France face an extended period of growth, as they continue to establish themselves as the EU’s leading lights following Brexit. France is leaping into a transitional period, and hoping its politicians don’t sit stubbornly on the edge. Germany’s immediate future is nothing but positive, and its prospects for reform are more long-term. In both cases, significant opportunities exist for businesses to join in with the changes - whether they’re laying the groundwork or stepping straight into the breach.
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