France should vigorously defend its euro zone reform proposals

by Dramelin 12:00 AM 0 comments

How important is all this for people currently operating, or contemplating, euro area portfolios? The short answer is this: If, as widely expected, Merkel remains the head of government and retains Wolfgang Schaeuble to serve as finance minister, Germany will be in no hurry to initiate euro area reforms.
Germany`s only euro area problem at the moment is the expansionary monetary policy run by the governing board of the European Central Bank.
Berlin`s big issue now is how to get a lock on the ECB by putting in a German, or a suitable (North European) surrogate, as the bank`s next president.
By contrast, France faces serious problems in its attempts to reform the economy and to set its public finances on a path consistent with the eurozone`s criteria.
Executive decrees to, as the French say, increase the "labor market fluidity" — essentially to make it easier and cheaper to fire people — are being met with street demonstrations and political warnings not to aggravate the country`s existing social tensions.
The first protest marches organized on Sept.
12 are estimated by the government to have gathered 220,000 people.
The unions claim a much bigger participation.
The next two events are announced for this week (Sept.
21 and 23), with larger crowds and broader political, economic and social agenda espoused by center-left parties.
The French government is putting up a brave face on all that, ready not to yield on labor market reforms and other politically flammable issues in the pipeline.
One of those will be public spending cuts to bring the budget deficit to 3 percent of GDP (from 3.
4 percent last year), a borderline euro area requirement, and a far cry from the German proviso to get, with dispatch, balanced budgets throughout the monetary union.
The French public debt of 96 percent of GDP (in 2016), compared with Germany`s 68.
3 percent of GDP, is another problem Paris will be asked to deal with in the months to come.
All that is happening in a situation where the approval rating of the French President Emmanuel Macron went into a free fall during his first 100 days in office to 36 percent at the latest count — the lowest ever for any of his predecessors in the Fifth Republic at the same time of their tenure.