What does Macron’s victory mean for the eurozone?

Emmanuel Macron's emphatic win in the second round of Sunday's presidential election was a major event not just for France, but for the eurozone as a whole. In a contest pitched by his opponent Marine Le Pen as being between “patriots and globalists,” he not only won by a more decisive margin than many anticipated but did it draped in an EU flag. His programme emphasises not just domestic reform in France but renewal of the eurozone and its functioning. Crucially these twin agendas are intrinsically linked and come at a time when, despite pessimism still abounding on the comment pages of the British press, the European economy is putting in what can only be described as a good performance.

Macron and those involved in his young political movement En Marche! have been keen to sell themselves as being of neither the right nor the left and outside of France this ambiguity has allowed politicians as varied as George Osborne and Sadiq Khan to hail his election as a victory for their own brand of politics. Macron is certainly a social liberal, a supporter of globalisation and the European Union and, at least in a French context, something of an economic liberal as well, but a deeper look at En Marche's manifesto places the party firmly in the tradition of the wider European centre-left. The proposed domestic agenda feels distinctly more "Nordic" than “Anglo-Saxon,” emphasising not just flexible labour markets but decent standards of welfare. Moves to raise the cost of precarious work for employers and expand unemployment benefits to the self-employed sit alongside efforts to give firms more ability to negotiate wages and working hours.

Both the domestic and European agendas draw on the technocratic, reformist tradition of the French Socialist Party that can be traced back to Jacques Delors, Pascal Lamy and (whisper it) Francois Hollande. It was noteworthy that Macon named checked and thanked his deeply unpopular predecessor in his sombre victory speech on Sunday evening. Progress on the domestic front will require either a strong showing by En Marche in June's parliamentary elections or deft alliance building with the existing parties. Most likely it will require both.

For all the gloom to be found in Anglosphere commentaries, the underlying state of the French economy is far from disastrous. Productivity levels are excellent and forward economic momentum is at a multi-year high. Unemployment is high but participation in the labour force amongst prime age workers is above the average rate of developed economies. The issues are that too many young people lack work and too many older people retire early. These are the challenges that Macron's labour market agenda aims to tackle. Success will mean a tough political battle against entrenched interests. Winning that battle is key not only to the domestic programme but also to unlocking the potential for reform at the European level.

The En Marche agenda for the eurozone is, for want of a better term, typically “Gallic.” Macron has called for a common eurozone budget and a eurozone finance minister and whilst both moves would be sensible steps towards completing Europe's incomplete currency union, neither will be popular in Germany which fears the common currency turning into a “transfer union” and money flowing from the strong centre to the weaker periphery.

Wholesale reform of the euro feels a long way off but the potential is there for meaningful progress—completing the banking and capital markets union to allow for a better functioning financial system, greater investment spending at the European level and perhaps even a meaningful discussion about the wide implications of Germany's export-driven economic model and its impact on the rest of the euro's member states. None of this can be achieved without the co-operation of the German Chancellor Angela Merkel and Macron is intensively aware of this. His approach here differs considerably from that of his predecessor who was elected on a platform of reversing austerity and confrontation with Germany. Macron has pledged to keep the French budget within the eurozone's rules on deficits and has emphasised the need to reform both the eurozone and, crucially, France's own economic model. All of this is, at least partially, about building credibility in Berlin.

The world has moved on since 2012 and President Hollande's election. The victory of President Donald Trump and Britain's own impending exit from the European Union have changed the political landscape in ways which few foresaw. Faced with a major change in the nature of the Atlantic alliance and the exit of the EU's second largest economy, eurozone policymakers are being strongly incentivised to make the currency work.

After Germany's election is out of the way in September, and assuming that Macron has made progress in demonstrating his ability to reform the French economy, the political space may be open for meaningful change.

The spectre of anti-European populist governments has blinded many outsiders to the performance of the eurozone economy in recent years. Buoyed by the European Central Bank's expansionary monetary policy, the zone has been doing relatively well. There are still risk on the horizon—not least the potential for a Five Star Movement government in Italy—but, for the first time in years, it is now possible to be optimistic about the future of the euro.