The French Dilemma

Few 'deplorables' on this side of the pond are shedding any tears over the predicament that French President Emmanuel Macron finds himself in with the violent protests erupting throughout France. The man is an arrogant globalist whose pretensions both for himself and his country reach far beyond their means. And it is hard to forget that Macron recently insulted America by saying Europe needs a strong military to defend itself not just from the Russia and the Chinese but also the U.S. The ignorance of such a statement is breathtaking. And it is humorous to think that the fragmented European Union could coalesce enough to form an effective military. 

As for the riots. Marcon's fuel tax has precipitated the 'Yellow Vest' rage that is sweeping France. But there is more to the protests than just that. The rural areas of France have fallen significantly behind the urban centers, especially Paris where the elite hang their hats. People in the hinterland feel neglected and bypassed by globalism. Adding to the discontent is the fact that France has the highest tax burden in the European Union (except for Belgium) coupled with a stubbornly high unemployment rate -- 9.3% compared with 3.4% in Germany and 4% in the U.S. 

Essentially the French working class wants a bigger piece of the pie. But the problem is that France has ossified. New business creation and expansion is very difficult because of hidebound bureaucratic rules and regulations. Companies have little flexibility to grow, innovate or even manage their work forces. This freezes the French labor market in place. For many of the young, the best way to obtain gainful employment is to migrate. 

To give the devil his due, Marcon came into office in May 2017 promising to reform the long-moribund French economy. That may have tickled the ears of the electorate on the campaign trail but when reality set in, they quickly soured on their president. Yes, there were other matters leading to Macron's dismal approval rating (now around 26%) but his attempts at economic reforms are the driving force.

This leads to the French dilemma. The middle class and working poor in France want a better life for themselves and their children. But at the same time, they (and French society in general) are resistant to meaningful changes. Economic reform is something all French presidents have attempted in recent years. None has been successful. 

This poses a paradox. If the above is true, why then is France as wealthy as it is? After all, France has the third largest economy in the European Union and ranks 20th in the world in terms of GDP. I would offer two reasons to explain this. The first is that France is in the EU, and the EU was designed to benefit France and Germany the most. (That being the case, it is a mystery why Great Britain threw its lot in with the EU in the first place, but that's another story.) 

Second is the United States. For over 70 years, America been essentially protecting the countries of Europe, first from the U.S.S.R. and now Russia. This has transferred a tremendous amount of Europe's defense cost from itself to the U.S. taxpayer. In addition, in order to win the Cold War, U.S. created a trading system that disadvantaged itself for the benefit of other countries. Here, Europe jumped in with both feet and took full advantage. 

But these forces which are really external to France itself are disappearing. The EU itself is in disarray. With German Chancellor Angela Merkel tarnished and on her way out, Europe is leaderless. Marcon had aspirations of filling that vacuum, but the violent French protests and his caving in to them has put an end to that. 

More serious still are the internal squabbles within the EU. Brussels is at its wits end trying to force Muslim and African immigrants on the countries of Eastern Europe like Poland and Hungry. Italy is busting the EU's budget guidelines with little regret. It seems that populist parties are gaining strength throughout Europe. The outlook for Europe in the coming year is nothing but turmoil in spades. This cannot be good for the French economy.

And then there's President Trump. He continues to scold Europe for its lack of spending for its own defense. But given Europe's social welfare structure, the countries there will find themselves hard pressed to devote more resources to NATO. Whether Trump is in office or not, the fact remains that there is no justification for maintaining the status quo of NATO, and America will continue to pursue the matter until it is resolved. 

As to trade, the party is ending there too. China is not the only country that Trump is calling to account for unfair its trading practices. Europe is, as well. One of the reasons why America's GDP growth is outpacing Europe's is because MAGA is starting -- just starting, mind you -- to end the transfer of America's wealth to other countries. For the short term, America's gains will be someone else's losses. This is because the current trading system is far from equilibrium in terms of fairness. Until a proper balance is struck, it will be a zero-sum game.

So, the Yellow Vests are calling for Emmanuel Marcon to resign. Okay, what if he does? What will change in France? Nothing. Who will replace Macron? It really doesn't matter. At this stage, French society and its economy might be nonreformable regardless who resides in the Élysée Palace.

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