This has been the first genuinely good day for the eurozone since the outbreak of the financial crisis in late 2009. The landslide victory of Emmanuel Macron gives Europe hope. France faced the starkest, but also most honest, political choice of any large European country in many decades: between staying in the eurozone and reforming, or quitting. The usual choice of muddling through was not on offer. This election was not about the future of democracy. It was about the future of France in Europe, and about the future of Europe itself. The French were asked a clear question. They gave a clear answer.
I can think of no other politician in any EU country who has managed to win an election with an explicit eurozone-reform agenda. There is no guarantee that Mr Macron will succeed — and it is indeed all too easy to draw up scenarios in which he will fail. But if the optimistic scenario for the eurozone were to prevail, this is how it would have to begin — with a leader from a large country gaining a political mandate for change.
The timing plays in his favour. He will not be in a position to push for eurozone reforms for another year. The Germans hold elections in September, the Italians will vote early in 2018. This forced delay gives him a year to demonstrate that he is serious about his domestic reform proposals.
Mr Macron's election is a hugely important first step for change in France and the euro zone. But, as of now, it is no more than that.
It is a common notion, but wrong, that France is an ailing economy. France and Germany have enjoyed almost identical levels of labour productivity for the past 50 years. Both countries have achieved a similar economic performance since the introduction of the euro — with Germany doing a little worse than France before the financial crisis, and a little better since. France is not like Italy — which has failed to generate much productivity growth since entering the eurozone. This is why the case for eurozone exit, as made by Marine Le Pen, was not as strong in France, as it will be in Italy.
France, however, has been breaching the EU’s fiscal rules. It has debts of 100 per cent of gross domestic product, while Germany is on course to reduce its debt-to-GDP ratio to 60 per cent by the end of this decade — the official, but much ignored, debt ceiling in the eurozone. If Mr Macron has any chance to persuade Berlin of the virtue of a common eurozone budget and a common finance minister, as set out in his manifesto, he will need to demonstrate that he is serious about fulfilling the treaty rules. Fortunately for him, the timing is good. The eurozone economy is in a mild cyclical upswing. There is no better time to consolidate but now. His programme set out a moderately strong fiscal squeeze of € 60bn over five years. At an average annual rate of € 12bn, this is between 0.5 per cent and 0.6 per cent of last year’s economic output.
Germany is happy that Mr Macron won the election but virtually nobody in Berlin is talking about his idea of a common eurozone budget and finance minister. The SPD is more flexible than the CDU but, unlike Mr Macron, is not campaigning in favour of common fiscal policies either. Berlin will soon discover that Mr Macron is demanding changes that the German political establishment has explicitly ruled out. At least one side will end up eating its words — and both will if they settle on a compromise.
Mr Macron’s election is a hugely important first step for change in France and the eurozone. But, as of now, it is no more than that.
(Copyright The Financial Times Limited 2017)
