France’s economic reform outlook under Fillon

Francois Fillon was elected to become the main right-wing party’s candidate in the French 2017 presidential elections. For the first time, the Republican party (ex-UMP) held a primary in order to determine who would be its presidential candidate. For months it had been assumed the run-off would oppose Alain Juppé, mayor of Bordeaux and ex-prime minister, and Nicolas Sarkozy, ex-president. But France’s right-wing electorate mobilised to vote for Fillon, who was prime minister under Sarkozy and is advocating a ‘liberal choc’ (economic liberalism) and social conservatism.

In May 2017, Fillon will face a Socialist candidate who will emerge from the Socialist primary on 29 January 2017, Emmanuel Macron (ex- Socialist Party member, ex-minister of the economy and founder of the movement ‘En marche!’) who will run as an independent, Marine le Pen of the National Front, Yannick Jadot of the Greens/EELV, Jean-Luc Mélenchon of the Left Party and Sylvia Pinel of the Radical Left Party.

What happened?

Fillon benefitted from a powerful political momentum: 1. The preference for an honest president and deep reforms, 2. An extremely bad track-record of current socialist President Francois Hollande which highlights the need for reforms and 3. A generalised ras-le-bol (having had enough) of Sarkozy as well as strategic mistakes by Juppé.

For years, Fillon has been extremely honest and clear about the state in which he thinks France is in. Still punished for this honesty in 2007 when declaring being prime minister of a bankrupt state, Fillon now benefits from the fact that France’s right wing electorate seems to accept that major reforms are necessary and the debt levels need to be reduced. This is confirmed by polls: almost 6 out of 10 (57%) of French (not only the right-wing) want a next president who ‘deeply reforms the country’, 71% want an honest president. Already in 2014, 84% of right-wing voters wanted the (socialist) government to do more reforms. This trend has been exacerbated by Hollande’s presidency marked by his inability to do the structural reforms necessary to kick-start growth, significantly reduce record-high unemployment levels and reduce France’s debt.

Fillon was deemed the most credible candidate amongst all Republican candidates in the primary to pass and implement deep structural reforms. His book “Faire” (Do) was amongst the most bought political books in France – an initial sign of the resonance of his ideas with right-wing voters. His rival in the second round, Juppé, even though defending a similar economic program, was perceived as too ‘soft’ – Fillon’s rhetoric of a ‘liberal choc’ hit the right nerve.

His economic reform program

Fillon’s competiveness choc is aimed at reaching full employment within five years (less than 7% unemployment) and making France Europe’s number one economy within 10 years. The Republican candidate’s program contains numerous measures which are crucial to improve France’s competitiveness: reduction of labour costs, reform of the 35h working-week, lower corporate taxes and reduction of public spending which is the second highest in the OECD.

Measures

Finances

• Implement an austerity programme worth 110 billion euros: 30% by the state, 20% by local authorities and the rest by the social security (healthcare, pensions…)
• Increase VAT by 2 percentage points
• Abolish the wealth tax (ISF)

Governing method

• Appoint key ministers ahead of the presidential elections to give them time to prepare and start drafting reforms in order to pass them immediately once elected
• Cancel 2017 parliamentary summer break in order to pass crucial reforms within first 100 days
• Address constitutional change through the organisation of referenda on for example the reduction of parliamentarians

Competitiveness

• 40 billion euros in favour of companies by decreasing employers’ charges
• Simplify of the labour code
• Reduce corporate tax to 25%
• Allow negotiation of working hours at company level with a legal maximum of 48h per week (compared to currently 35h)
• Reform the powers of trade unions
• Change social floors for companies and legislation associated to them

Pensions

• Increase pension age to 65 years in 2022
• Harmonise pension schemes

Public Service

• Cut 500,00 civil servant jobs
• Impose a 39h working week

The path-dependency of reforms

While Fillon as a president would provide France with a positive reform outlook, the realities of the French structures and institutions will impact his ability to deeply reform the country as he will be channelled amongst existing and established policy paths. Both formal and informal institutions will remain a stumbling block to deep reform. Fillon’s use of the word ‘choc’ suggests immediate radical change, but radical change which does not happen incrementally is unlikely.

Trade unions as well as the state’s established organisational structures play an important role in the reform process. Trade unions have already now announced blockage should Fillon win the presidency. At the top level of the administration, Fillon will need to place key people.

Fillon’s proposed method of governance suggests that he is well aware of these institutional constraints. He has promised to pass all critical reforms in the first 100 days as a president to avoid a long consensus-finding process which risks the watering down of reforms. If he manages to implement these promises he might be able to start path-shifting which would more structurally alter France’s ability to do reforms. This, however, will only materialise in a timeframe of 10 or more years.

Overall, Fillon at the head of France’s state is currently not only the most likely outcome of the presidential elections but also the most positive for France’s economic reform outlook (in a context where Macron’s proposals remain vague). While Fillon’s proposed governing methods and economic reform program indicate he is serious about structural reform, the institutional difficulties of structurally reforming France should be borne in mind.