Macron puts on his yellow vest

If you thought Emmanuel Macron was too much of a technocrat, you’ll only be partially convinced by his attempt to switch to a yellow vest.
France’s president has fallen prey to the same curse that has afflicted all of his predecessors over the past decade: Angry protests over necessary economic reforms, and plummeting popularity. Despite his solid start as a new force in French politics backed by a grass-roots movement, Macron has opted for a familiar response after several weekends of
rioting by the gilets jaunes.
Addressing the nation on Monday night, he offered handouts, climb-downs and a promise to change his Jupiter-like leadership style. A hike to the minimum wage and a Christmas bonus may quell the violence from some of the yellow vests, but they won’t do much for Macron’s reputation as a reformer and good European.
It would have been a task worthy of Zeus for Macron to satisfy every demand from the nebulous yet vicious protest movement that caught his administration completely unaware. His earlier reversal of a planned fuel tax hike wasn’t enough. The latest promise to splurge about 11 billion euros on budget giveaways combined with a more forceful police response to violence, looks better designed to satisfy those protesters with specific worries about making ends meet. It could never win over the die-hard trouble-makers, but it should make others think twice about strapping on their vest again ahead of the festive holidays.
The promise of more spending and a populist “big-tent” approach will raise eyebrows in other European capitals – especially Rome, which will love Macron’s newfound willingness to bust Brussels-imposed deficit limits. But there’s still a strong chance France will be given the benefit of the doubt by the European Commission and sovereign debt-holders.
The deficit was due to be close to 3% of GDP next year before falling back to below 2%; it will probably be about half a percentage point higher now, according to the French press. If that’s the price of protecting Macron’s previous reforms, it’s just about worth it, according to a Bank of America-Merrill Lynch economist.
But the bigger question is whether the fire of Macron’s reformist drive has been extinguished by yellow vests. The inexperience and complacency of his administration means political capital is being used up on making sure his early reforms don’t come undone. Macron’s shake-up of the labor market is nothing to sniff at: UBS economist Felix Huefner sees parallels with Gerhard Schroeder’s German reforms in the early part of the last decade, which were met with protest but boosted exports and the economy.
And investors and business leaders will no doubt be pleased to see Macron stick to his guns on issues like a slimmed-down wealth tax and corporate tax cuts. Nevertheless, it’s hard to see how his planned pension reforms and privatizations can go ahead in 2019 without increased resistance. In trying to save his presidency from collapse, Macron has slammed on the brakes. He may never again hit the accelerator.
—Bloomberg

Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes