French vote to keep European Union and euro alive (for now)

Alexander Bueso WebFG News | 24 Apr, 2017 12:14 - Updated: 20:34 | | |


France voted to keep the euro alive at the weekend but the overall results laid bare an increasingly fragmented political landscape, leading some to question whether the winner, centrist Emmanuel Macron, will really be able to effect positive change - more importantly, whether the French truly want it.

On a positive note, sort of, the more moderate political forces from the centre, centre-right and Socialists managed to eke out a slim majority of roughly 50.4%.

Yet the question now is whether after the parliamentary elections in June that centrist majority will translate into sufficient backing for much-needed economic reforms - as most analysts at the largest investment banks appear to expect - in one of the European Union's two key nations.

Like in many other countries in Europe, the underlying debate is highly complex and has multiple cross-currents.

The great financial crisis revealed that the proverbial Emperor had no clothes, with the drag on the economy from ageing populations and a sharp drop in productivity brought starkly into the full light of day.

Indeed, as the narcotic effects of 'financial innovation' reached their limits and the global financial system literally almost self-combusted, it became abundantly clear that he was, in fact, stark naked.

As an aside, it must be said that the crisis was not the fault of the bankers, or not theirs alone, in the final analysis everyone went along for the ride as long as the music was still playing.

Even if readers do not agree with the above, the fact remains that in the aftermath of the crisis many were left behind and the rapid social changes which were underway as a result of globalisation and new technologies have quickly turned from being perceived as exciting and new to threatening.

Much the same can probably be said of immigration, which in the UK likely played an important role in keeping economic growth above what it would otherwise have been, while in Europe in general it is needed to help offset already shrinking populations.

Hence the strong showing too on Sunday for the three main anti-euro French parties, which totalled 45.7% of the vote.

That includes the far-left La France Insoumise of Jean Luc Melenchon which obtained 19.6% of the ballots. He was left out of the running for the second round of the elections on 7 May, but is an existential threat to the country's Socialists, whose leader, Benoit Hamon, only took in 6.3% of votes.

To take note of, the above results mirror current sentiment in Italy, where a Eurobarometre survey from the European Commission published in December showed 47% of Italians thought the euro was "a bad thing".

In 2008, France´s GDP per capita stood at $45,413, versus $36,354 in 2015. That compares to a fall in the UK from $49,949 in 2007 to $43,930 at present.

Italian GDP per capita fared much worse over that same time frame, falling from $40,640 in 2008 to $29,993, although Spain (which managed to pull off reforms) is the worst of the lot, having gone from $35,579 in 2008 to $25,685 in 2015.

Worth noting, the relative standing of European countries (again, UK included) in terms of GDP per capìta has been relatively constant for centuries, so any large shifts might potentially ruffle more than just a few feathers even at the highest levels.

Of course, France is still a very wealthy country, which is perhaps one possible reason for optimism, but more recently it has begun falling behind other so-called 'high income' countries, according to data from the World Bank.

Likewise, a mix of moderate reforms (not too moderate, hopefully) and making sure the social safety net is secure may be the best way forward.

Hence, hopes are riding high that France has indeed managed to dodge the 'populist bullet' and will keep pushing forward with much needed reforms and undo self-inflicted wounds on its economy such as the 35-hour working week.

In turn, that will help stabilise both the European Union and the euro area.

Nonetheless, dodging bullets is a risky way of going about life, so whoever makes it to the Elysee after May's vote, and leaders in other European capitals, should not count on being able to pull that trick off a second time.

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