What reforms? Any attempt to trim the bloated public sector by cutting the government spending — about 1.5 percent of GDP in 2016, compared with 3.8 percent of GDP in Germany — would destabilize an already moribund economy and cause riots in the streets. The same would happen in case of radical labor market reforms — essentially a free-hand at hiring and firing — which, according to some analysts, have gone much further than those in Germany.
The rest of reform chatter is cosmetics.
But this is not cosmetics: What, if anything, did Macron tell the Germans about the huge problem of French public finances? Sure, he would rather not talk about that, but that’s all the Germans want to discuss — in excruciating detail.
After a conditional pass Germany gave France last year on yet another failure to meet its budget deficit target, Berlin and its EU Commission enforcers are expecting that France will honor its commitment to cut this year’s deficit to 2.7 percent of GDP from 3.4 percent in 2016. They also want France to stop and reverse the alarming growth of public debt. Over the last five years that Macron’s Socialist friends have been in office, public debt with respect to GDP has increased 11 percent, and is on course to hit 124 percent by the end of this year — more than double the 60 percent public debt-to-GDP ratio set as the upper limit by the monetary union rules.
How can France deliver on these commitments with virtually no economic growth, and one of the worst labor markets in the euro area? Will the French discuss that in the week remaining to May 7 elections? And would that matter to the election outcome?
