Is the shine off Macron?

Emmanuel Macron is on a winning streak. Within a year, he has gone from inexperienced political underdog, with no establishment backing, to President of the French Republic and leader of a newly created political party with an impressive parliamentary majority. Can he keep it up?

Macron owes his recent success not just to good luck, but also to his ability to build on any break that came his way. For voters who were feeling mistrustful of the political establishment, he managed to provide an appealing option that did not require a move to the fringes, whether right or left. He came to be seen as a smart disruptor of the disruptive populists.

Macron’s economic programme was particularly clever, as it responded impeccably to more than a decade of analyses of the ills afflicting the French economy. He committed to freeing up the famously ossified labour market and alleviating an excessive and entrepreneurship-stifling tax burden. He also pledged to shrink France’s unwieldy state, which now spends 57% of GDP per year, by reducing cumbersome regulations and rationalising the outdated welfare system.

After his election, Macron upheld his reputation as a breath of fresh air, building a government composed of young people from all walks of life – inexperienced, maybe, but enthusiastic and smart. Those who had long lamented France’s economic decline could not believe the miracle taking shape before their eyes.

But great expectations can herald great disappointment. And early signals from the Macron administration are disquieting. While the promised labour-market reform is well underway, and could be adopted as early as September, the administration’s macroeconomic programme, articulated by Prime Minister Edouard Philippe, is a serious disappointment.

Philippe has announced that he plans to cut public spending by a mere three percentage points of GDP over five years. He has postponed several clever pro-growth tax cuts, some until the end of Macron’s current term of office in 2022. A couple of days later, Macron changed tack and brought some of these cuts a bit forward. Yet he intends to carry out in 2018 a general tax increase that was presented as a partial offset to the cuts.

In defense of this approach, Philippe cites the official national-accounts watchdog, the Cour des Comptes, which has reported serious budget overruns for 2017 – a result of disingenuous electoral promises by the departing president, François Hollande. The newcomers must therefore bring the deficit back down to 3% of GDP, as promised last year to France’s European partners. It is, Philippe insists, a matter of credibility.

But pleasing the bean counters in Brussels or Berlin threatens to undermine France’s incipient economic recovery – and, in turn, support for the country’s new president – at a moment when important and, at times, unpopular reforms must be pushed through. (As it stands, per capita GDP is now only slightly above its precrisis level, and unemployment began a slow decline just last year.) European leaders would probably prefer a little deficit slippage to the loss of popular support for France’s pro-Europe president, provided public spending is reduced.

Macron must understand all of this. So why he is taking such a macroeconomic risk? And, perhaps more important, is this indicative of what the rest of his presidency will look like?

The most positive interpretation assumes that Macron has decided to focus on deep and courageous reforms, while approaching macroeconomic issues with caution, much like his predecessors, Nicolas Sarkozy and Hollande. Both initially rejected austerity only to end up adopting it.

But Sarkozy and Hollande saw their public opinion ratings drop precipitously after their embrace of austerity. Does Macron think that his luck will continue, bringing, say, a stronger economic recovery than currently foreseen? Or does he simply believe that he is in a stronger position to survive disappointing growth and unemployment outcomes than his predecessors? In other words, is Macron being driven by faith or hubris?

The most disquieting interpretation of Macron’s decisionmaking is that he is already captured by his own administration. Top French civil servants of the kind that he has assembled traditionally share two characteristics: they are overly cautious and they have a poor understanding of macroeconomic strategy.

Given this, it seems likely that many in Macron’s administration take the European agreements very seriously, even too seriously, and are repelled by the idea of vigorous spending cuts, because their power is related to the size of the purse they control. If this reading is correct, the French government will remain top-heavy, and the tax burden will remain suffocating.

But there is a third possibility: Macron believes that, to advance his vision for the European Union, he must act impeccably on the European stage, meeting the most stringent German standards. That approach would be reasonable if Macron really had a new vision for the EU. During the electoral campaign, he mostly just rehashed the traditional French view: a common European government and a eurozone finance minister, with a separate budget to finance public investment.

Most other EU countries have already rejected that vision, and many believe that not even France itself would agree to the transfers of sovereignty that such reforms would imply. In any case, the EU is not at the point where it can discuss such radical steps, as its top priority still must be to fix what is broken: a half-baked banking union, a non-functioning Stability and Growth Pact, excessive regulation, and an empty immigration policy.

Macron’s rapid ascent reflected his ability to say the right