Macron and Merkel: Will We See Economic Reform In Europe?

“Currently, Macron and Merkel remain at odds about what should be done in order to restructure the EU. While both agree that reform is…”

by Paul Sciglar

Macron, a pro-EU centrist, ran on a platform of pragmaticism. During the election, Macron called for the unity of the French people, the strengthening of France’s economy, and the support of the bloc’s powerhouse, Germany.

Is sweeping reform for the EU possible? Macron has pushed for Germany to boost its support of deflated eurozone economies in order to increase competitiveness and relieve the debt crises that seem to plague to bloc.

“I am pro-European,” he said in an interview with BBC News. “The question is that you have almost half of this country angry with the European idea and with a lack of satisfaction vis-a-vis what we decided… in recent years. So, we have to reform this Europe. We need a new European Union… to protect our people and to regulate… globalization.”

Angela Merkel was no doubt relieved when Macron defeated his alt-right opponent Marine Le Pen. Still, it seems that Macron’s victory has not been enough to inspire Germany to get on board with some of Macron’s proposals for reform.

“Germany… has a strong economy,” Macron said in an interview to a French regional daily newspaper, “but it has demographic weaknesses, economic and trade imbalances with its neighbors and shared responsibilities to give the euro area the future it deserves.”

One of Macron’s more controversial proposals is his common eurozone budget. Jointly-issued bonds backed by Germany, Macron contends, could help resolve the debt crises plaguing the region.

At present, Macron’s proposal of a common eurozone budget is off the table. In late October, Germany made is apparent that limiting debt was a primary concern and therefore, Germany would not be participating in issuing jointly-issued bonds. Macron contends that Germany is profiting from deflated eurozone economies. Merkel has opposed this — as some worry Germany will have to shoulder the majority of the bloc’s debt.

While Germany has been hesitant about boosting spending, Merkel has been very vocal of her support of Macron and has stressed the importance of cooperation between the two large economies. France’s economy is second only to Germany; Merkel has stated that the relationship between the two countries is the cornerstone of German foreign policy.

France’s large economy has not stymied a plethora of internal economic issues, however. Its high unemployment rate have stubbornly hovered around 10%, which is considerably higher than the UK’s and Germany’s, which both lie below 5%. Indeed, France’s unemployment rate is higher than the bloc’s average, despite being one of the largest economies.

As progress with Merkel has been relatively slow, Macron has only accomplished to push through some of his proposed labor reform. During the election, Macron promised to increase France’s competitiveness by hollowing out some of the laws and restrictions preventing French corporations and businesses from hiring.

Pro-union and pro-business groups have met his initial labor reforms with skepticism. Pro-union groups contend that the reforms are an attempt to weaken workers’ rights. Conservatives contend that his reform does not go far enough to empower businesses.

As Macron brings his plan for labor reform into action, his plan to boost Germany’s spending have made little traction. Merkel has been somewhat receptive to establishing a finance minister for the eurozone, but her plans for the role remain undefined.

Currently, Macron and Merkel remain at odds about what should be done in order to restructure the EU. While both agree that reform is the answer to stabilizing the region and spurring growth, they disagree as to what Germany’s role should be.

Unfortunately, Macron’s labor reform alone won’t be enough to revitalize France’s economy or increase the competitiveness of their corporations. Macron will need to cooperate with Germany effectively and reach mutually beneficial compromises.

Undoubtedly, Macron has some major challenges he will have to face to arrive at any sort of solution for France’s sagging economy. While growth for the eurozone has been better than projected in the last few quarters, he cannot rely on the growth of the region alone to satisfy the French people.

Paul Sciglar is a columnist interested in international policies and economic affairs. Certified Accountant with broad experience in strategic analysis, FP&A, investment banking, and investment management. You may connect with him on Twitter.