France’s Election Provides Only Short-Term Relief For The Euro

Emmanuel Macron is the new president of France. The 39-year-old political shooting star got 66.1 percent of the votes in the second round of the presidential election last Sunday. His opponent, Marine Le Pen, secured just 33.9 percent of the votes. 

The pro-EU and pro-euro camp is rather elated, actually delighted: The French are not going to withdraw from the community project — as it had to be feared if and when Mrs. Le Pen made it into the Élysée Palace. For Mr. Macron is seen first and foremost as a fervent supporter of the European project. But is there really a reason for cheering?

According to the Institut de Recherches Economiques et Fiscales in the first round of the presidential election 55 percent of voters supported a market-hostile collectivist course — from the nationalist Marine Le Pen, the Gaullist Nicolas Dupont-Aignan to the socialist Benoît Hamon, and communist Jean-Luc Mélenchon. In other words: More than half of the French voters want France and Europe to move away from a free market economy, preferring an interventionist-collectivist type of economic order.

In the second round of voting, the French put Macron into power largely because they wanted to prevent Le Pen, not because they had a particular liking for Mr. Macron’s political agenda. That said, Mr. Macron will face quite a few challenges at home. He needs the support of the French National Assembly. However, his political movement “En marche!” has basically no basis in France’s lower house of parliament. The election of the 577 deputies will take place on June 11 and 18. Whether Macron will succeed in forming a stable coalition is questionable.

From what little is known about his economic views, the new president seems to have a liking for a Keynesian-style economic policy. The state is, according to Mr. Macron, supposed to run more credit-financed expenditure programs to spur output and employment. What is more, an economic and finance ministry should be set up for the euro area; “social dumping” should be prevented in the EU; a “Buy European Act” should be created, protecting “strategically important” companies from foreign competitors; and “euro bonds” should be issued.

With a lack of far-reaching market reforms, however, higher output and more jobs cannot be expected in France. This would be bad news indeed: The Grande Nation suffers from low growth, high unemployment, rising public debt and ailing banks. In fact, the country pays the high price of having increasingly abandoned the principles of the free market over the years, allowing the state to expand and increasingly intervene in the economy — be it in the form of taxation or regulation — resulting in dismal economic performance.

It is hard to see how Mr. Macron’s presidency could help fix the EU and the euro currency in particular. Yes, it may well provide some short-term relief: Financial markets seem to have been pricing out an immediate break-up of the euro zone for now. However, the root cause of the euro problem remains unsolved: The credit boom, which has been created by the European Central Bank (ECB), has crashed, and it has left behind over-indebted states and banks, capital destruction, and uncompetitive firms in many countries.

The truth is that the euro zone can only be kept together by ultra-low interest rates and the ECB running its electronic printing press to bail out overstretched states and banks. This, in turn, results in redistribution of income and wealth among the euro zone member states on a shockingly grand scale: The euro zone hasn’t become a project for fostering prosperity of its members — but instead a Soviet-Union-style mechanism in which the dysfunctional countries increasingly drain the economic power of the better performing countries.

If France is not really making progress in terms of returning to a free market system, economic and political tensions within the single currency project can be expected to reemerge and rise even further — and potentially setting the stage for the final euro crisis. Of course, the unexpected may unfold and a new page will be turned on the EU under Mr. Macron. For this to happen, however, it would be a requisite that he succeeds in leading the French in a direction in which they obviously do not wish to go.