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December 11, 2018


Macron's spending promises - Pandora's box?

Emmanuel Macron spoke to the French nation last night, declaring an economic and social state of emergency. He delivered a mea culpa for not reacting quickly and strongly enough to the deep anger and indignation of the gilets jaunes, but also insisted that no anger justifies violence. He announced some strong measures to boost purchasing power, all of which featured on the three-page-long list of demands from the gilets jaunes:

  • the minimum wage will increase by €100 per month as of next year, without cost to employers;
  • overtime hours would be exempt from taxes and social charges as of 2019, while employers will be asked to pay a tax-free end of year bonus to employees this year;
  • a planned tax will be cancel for pensions under €2,000 a month; 

More details will emerge when Édouard Philippe delivers his speech in parliament today. First reactions among gilets jaunes are that those measures may be a step in the right direction but won't be enough. They promised to continue their protests. 

Some criticism is related to the proposed measures themselves. Mediapart wrote that the minimum wage rise is in fact an employment premium that was in the pipeline anyway and has just been implemented earlier. It constitutes not a wage rise but a social premium paid by the taxpayer, and thus won't have an effect on other wages. This also means that all those measures announced last night are financed by general taxpayers’ money. Many gilets jaunes last night criticised Macron for not addressing the issue of fairness. In his address he refused to open up his wealth reform again, which benefits the richest through by abolishing the tax on assets other than real estate. 

The other strand of criticism is that purchasing power is not the only issue. In fact it might have been sufficient two weeks ago, but not anymore. The protesters want some democratic and institutional changes from the president, who after all came to power on the promise to revolutionise the country. On this subject Macron remained vague. He promised to seek cooperation with the mayors to build a new contract for the nation. His most concrete measure proposed last night is to make abstention votes count in the elections. Other than that there is not much taken from the list of the gilets jaunes. No dissolution of the assembly, no participative referendum.

The spending promises from Macron's speech, together with the postponement of the carbon tax, imply about €11bn less money in the 2019 budget, according to Les Échos. And this is not the only financial fallout from the gilets jaunes movement. The Banque de France already slashed its forecast for Q4 from 0.4% down to 0.2% given the the impact of the ongoing protests on retailers. For next year the finance ministry expects €4bn less income due to lower growth figures, according to the paper's sources. This could push up the deficit to 3.6% of GDP next year. The finance ministry already scheduled some savings of about €3bn-€4bn, which will get the deficit below 3.5%. 

Our other stories

We also have stories on what the French budget overshoot will mean for the stability pact; on why the Brexit process will go down to the wire - plus an observation on why Brexit forecasts are often made in the passive voice; on the Brexit deadline for derivatives contracts; on how Swiss stock exchanges may lose their EU regulatory equivalence; and on how a short German transport strike managed to flatten the entire country.

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