CAMBRIDGE • French President- elect Emmanuel Macron's victory over Ms Marine Le Pen was much-needed good news for anyone who favours open, liberal democratic societies over their nativist, xenophobic counterparts. But the battle against right-wing populism is far from won.
Ms Le Pen received more than a third of the second-round vote, even though only one party other than her own National Front - Mr Nicolas Dupont-Aignan's small Debout la France - gave her any backing. And turnout was sharply down from previous presidential elections, indicating a large number of disaffected voters. If Mr Macron fails during the next five years, Ms Le Pen will be back with a vengeance, and nativist populists will gain strength in Europe and elsewhere.
As a candidate, Mr Macron was helped in this age of anti- establishment politics by the fact that he stood outside traditional political parties. As President, however, that same fact is a singular disadvantage. His political movement, En Marche!, is only a year old. He will have to build from scratch a legislative majority following the National Assembly elections next month.
Mr Macron's economic ideas resist easy characterisation. During the presidential campaign, he was frequently accused of lacking specifics. To many on the left and the extreme right, he is a neoliberal, with little to distinguish himself from the mainstream policies of austerity that failed Europe and brought it to its current political impasse. French economist Thomas Piketty, who supported socialist candidate Benoît Hamon, described Mr Macron as representing "yesterday's Europe".
Many of Mr Macron's economic plans do indeed have a neoliberal flavour. He has vowed to lower the corporate tax rate from 33.5 per cent to 25 per cent, cut 120,000 civil service jobs, keep the government deficit below the EU limit of 3 per cent of GDP, and increase labour-market flexibility (a euphemism for making it easier for firms to fire workers). But he has promised to maintain pension benefits, and his preferred social model appears to be Nordic-style flexicurity - a combination of high levels of economic security with market-based incentives.
None of these will do much - certainly not in the short run - to address the key challenge that will define his presidency: creating jobs. As Martin Sandbu, who writes Free Lunch, a daily economics newsletter, notes, employment was the French electorate's top concern and should be the new administration's top priority.
Rate of unemployment among those under 25 years old in France. Overall French unemployment has been 10 per cent since the euro-zone crisis.
Since the euro-zone crisis, French unemployment has remained high, at 10 per cent - and close to 25 per cent for people under 25 years old. There is virtually no evidence that liberalising labour markets will increase employment, unless the economy receives a significant boost in aggregate demand as well.
This is where the other component of Mr Macron's economic programme comes into play. He has proposed a five-year, €50 billion (S$76.6 billion) stimulus plan, which would include investments in infrastructure and green technologies, along with expanded training for the unemployed. But, given that this is barely more than 2 per cent of France's annual GDP, the stimulus plan on its own may not do too much to lift overall employment.
Mr Macron's more ambitious idea is to take a big leap towards a euro-zone fiscal union, with a common treasury and a single finance minister. This, in his view, would enable permanent fiscal transfers from the stronger countries to countries that are disadvantaged by the euro zone's common monetary policy. The euro-zone budget would be financed by contributions from member states' tax receipts. A separate euro-zone Parliament would provide political oversight and accountability. Such fiscal unification would make it possible for countries like France to increase infrastructure spending and boost job creation without busting fiscal ceilings.
A fiscal union backed up by deeper political integration makes eminent sense. At least it represents a coherent path out of the euro zone's present no man's land. But Mr Macron's unabashedly Europeanist policies are not just a matter of politics or principle. They are also critical to the success of his economic programme. Without either greater fiscal flexibility or transfers from the rest of the euro zone, France is unlikely to get out of its employment funk soon. The success of Mr Macron's presidency thus depends to a large extent on European cooperation.
And that brings us to Germany. Chancellor Angela Merkel's initial reaction to the election's outcome was not encouraging. She congratulated Mr Macron, who "carries the hopes of millions of French people", but she also said she would not consider changes in euro-zone fiscal rules. There is also the problem of the German electorate. Having portrayed the euro-zone crisis not as a problem of interdependence, but as a morality tale - thrifty, hard-working Germans pitted against profligate, duplicitous debtors - German politicians will not have an easy time bringing their voters along on any common fiscal project.
Anticipating the German reaction, Mr Macron has countered it: "You cannot say I am for a strong Europe and globalisation, but over my dead body for a transfer union." That, he believes, is a recipe for disintegration and reactionary politics: "Without transfers, you will not allow the periphery to converge and will create political divergence towards extremists."
Mr Macron's message to Germany is clear: Either you help me out and we build a true union - economic, fiscal and eventually political - or we will be run over by the extremist onslaught.
He is almost certainly right. For the sake of France, Europe and the rest of the world, we must hope that his victory is followed by a German change of heart.
•The writer, Professor of International Political Economy at Harvard University's John F. Kennedy School of Government, is the author of Economics Rules: The Rights And Wrongs Of The Dismal Science.
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