For a couple of days, the serial dramas about political scandals seem, at last, to have left the place to fundamental issues in the campaign for the presidential election which ends in less than a month. We should be happy with that. The positions taken about foreign policy and defense give a better view about the projects of the main candidates in these areas where, due to the Constitution, the head of the State is in the front line. But it is not the most important point because French people are expecting to know if the economic choices of the current government will be confirmed by Emmanuel Macron or if some more radical options, as those suggested by Jean Luc Melenchon, Benoit Hamon or François Fillon, will be adopted. Marine Le Pen position is of poor interest since her proposal to organize a referendum about France exit from the European Union and the eurozone will have such huge consequences than nothing will be important compared to the financial tempest generated by that perspective. The economic debate will not end with the election of a new president on May 7th because it is the government, appointed after the legislative elections, in June, which will have the last word.
Emmanuel Macron project consists in confirming the choice he has inspired when he was working at the Elysée with François Hollande and which is in favor of a supply-side policy through a definitive reduction of social charges. The result is until now disappointing. Growth did not rebound and unemployment after the huge increase until autumn 2016 has just stabilized. French economy growth is still very insufficient and the trade deficit, excluding energy, has massively increased during the previous two years, also against all expectations. The “supply-side” economic policy has just had one tangible impact: the recovery of enterprises margins which has been employed to stabilize their indebtedness and to increase dividends and the payroll of the top management. Nothing of real significance has been decided in favor of employment or investment. Emmanuel Macron proposes also two important fiscal measures. The suppression of the property tax for 80% of the taxpayers, which will be compensated by the State to local authorities for about 10 billion euro, will be favorable to household purchasing power. The limitation of the wealth tax to real estate assets is also going in the right direction. Real estate taxation is notably low in France and the reduction of the taxation of financial assets will be well received. It is not possible to worry about the loss of many industrial jewels and about the difficulties to create and to pass enterprises and, in the same time, to penalize share ownership against other categories of saving. But this program, which will have to find a majority in the parliament to adopt it, is not ambitious enough to generate enough growth and to create the virtuous circle which will permit through job creations and the increase of fiscal and social resources, to reduce public deficits as France achieved it from 1997 to 2002 when Lionel Jospin was the Prime minister.
François Fillon economic project is much more brutal and it is the reason why, until now, he does not succeed in convincing French people, according to poll opinions. He proposes a double shock, on the purchasing power through a VAT increase and on employment through a substantial reduction of jobs in public services. The project includes also an augmentation of working time duration and a rise of the retirement age. Having to face a fall of demand, enterprises will not have enough clients to increase their production and they will not hire the hundreds of thousands of young people who arrive on the labor market every year. Unemployment rise will boost the unsecure environment which encourages employees to delay important expenditures and to save in order to protect themselves against a possible loss of their job. The expected growth will not be there. The tax cuts in favor of the enterprises will profit to the distribution of dividends and to the top management of the major listed companies and the suppression of the wealth tax will increase inequalities. Instead of cutting jobs in public services, it would be more efficient to reduce the number of bureaucrats, at any level. Figures will be smaller but it would slow down the trend of constant changes in regulation and taxation which carry a heavy weight on the life and the competitiveness of business.
The two candidates from the left, Benoît Hamon and Jean Luc Mélenchon, propose to do the opposite and to bet on boosting consumption, the first one through the creation of a new benefit, improperly called the universal revenue, since it will only be offered to half of the French population, and the second through strong wages increases. They refuse to take into account European regulations regarding budget deficits as a priority and they propose to renegotiate treaties in order to get rid of the 3% rule. The most important argument against their proposal is that policy would increase trade deficit and would not create jobs in France. That is not very convincing because the most important share of consumption is given to rents, food and energy. So a purchasing power increase has few real consequences on imports. The reduction of the working time they both propose is efficient to reduce unemployment. That has been verified between 1998 and 2002. On the opposite, the support of the most extremist proposals of the ecologists who don’t participate to the presidential election is dangerous. It breaks with the tradition of the left for which technical and social progress were going along. They come back to a nihilism whose abandon was supposed to have been definitive. To tax robots is as absurd as to fight against tractors. The condemnation of nuclear power put in danger France energy supplying, except if it is decided to reopen coal power plants as did Germany. To believe that renewable energies, which are intermittent by nature, could replace it is an illusion before significant progress has been made in electricity storage. It will take a lot of time, to suppose it will happen one day. To prefer massive public subsidies which carry a heavy weight on purchasing power against a technology which is controlled by the French industry, which generates qualified jobs and offers to consumers and enterprises a safe and less costly electricity than in every European countries and which is a progress that the left cannot today disown, is also absurd. To affirm, at last, that the ecologist transition would create millions of jobs, relies on no basis as soon as the incentives, necessarily costly, have not been described. The proposals of these two candidates carry to many loopholes to convince a sufficient number of voters.
The attractiveness of these programs will not rely on their quantification, by nature uncertain and, due to that, carrying a feeble credibility. Their authors will convince only if they find a right equilibrium between their ability to answer to the aspirations of their electors and an effectiveness they have to prove. It is why extreme proposals have a very few likelihood to profit to those who propose them and to be supported by a majority of the French people.