Political watershed at the heart of Eurozone growth

The euro area is looking like a haven of stability these days. The election of Emmanuel Macron and his strong relationship with Angela Merkel have driven expectations that the economy will get back to more robust growth and that the political arena will take the steps required to embark on reforms that will maintain stability in the long term.

This watershed is remarkable as barely six months ago, the euro area looked like it was on its last legs. The expected surge in populism during the various different elections was set to hamper European integration and set off a downward spiral of lessening cooperative and greater antagonism.

Yet as July gets off to a start, we can observe that this is far from the reality and that European electors did not follow the path chosen by the US and the UK. Continue reading

France: General elections – Second round – Employment and Europe in line of sight

The President-elect has won an overall majority after the general elections. His party will have 306 seats and 348 when the Modem, a close political party, is included (on 577 seats). Nevertheless, the new majority will not depend on ally (Modem).
It’s far from the tsunami that was expected after the first round. The new President majority will represent 60% of the seats (versus almost 80% expected after the first round) it is close to the average seen since 1981.
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France: General elections – First round

The French general elections will give an overall majority to Emmanuel Macron the President-elect. After the first round, yesterday, La Republique En Marche (LREM) his political party can expect between 400 and 455 seats on a total of 577.

Different remarks
1 – French people are legitimist; they have given a large majority to the new President enabling him to pass the reforms he announced during his campaign. This mustn’t be a surprise. The new President has always had a majority notably since 2002 as general elections follow the presidential election by a month. Nevertheless the LREM victory is large but not the largest as it can be seen on the graph below. Continue reading

The French Labor Market Reform

The French government has made its first proposals to reform the labor market. Its main idea is that competitive conditions have dramatically changed and it’s impossible to have a law that can solve all the issues.
For the government a “one size fits all” law cannot exist anymore on the labor market. The main reason is that companies face now very different environments that lead to a very specific framework for each of them. Therefore it can be efficient to commit to rules at companies’ level. These specificities are globalization which can be a very different constraint from one sector to another one, technological shocks with very different speed of adjustment depending on the type of activity, regulation can be very different between firms and sectors,  companies’ size from the very large company to a very small one is also an issue and specificities associated with different sectors can have an impact on companies’ behavior.

In other words, competition is not a uniform framework Continue reading

Job and unemployment momentum – the challenge of a presidential term

So François Hollande’s challenge has finally been met: unemployment at the end of his presidential term has fallen and is now lower than when he became president. This was a daunting task, but he reached his aim as the jobless total rose from 9.7% in the second quarter of 2012 to 10.5% in Spring 2015 before eventually falling to 9.6% over the first three months of 2017.
We have definitely seen a shift in the unemployment curve.

However, unemployment still has the potential to fall much lower as it stood at only 7.2% in the first quarter of 2008, so we cannot settle for such high joblessness, which is why fresh steps must be taken to make the job market more adaptable.

The aim here must be twofold: improve the French economy’s ability to create jobs when business is more buoyant, while also seeking to close the skills gap between available jobs and employees’/the jobless’ ability to meet them. It is vital for job growth to be able to flourish in the economy’s healthier sectors and for the French economy as a whole to be able to adjust more quickly to the overall economic cycle through employment and the capacity to garner the necessary human resources to drive buoyant sectors. However, this means cutting back jobs in declining sectors, as the country’s inability to cut jobs creates severe inertia and leaves it ill-equipped to reap the benefits of economic improvement. Sectors that do well after a recession are rarely those that drove the cycle before the dip, so it is important to be able to reallocate resources swiftly to reap the benefits of economic growth when it takes off. These factors are pro-cyclical in nature and can extend and reinforce growth momentum.

Two metrics clearly reflect these notions of the labor market’s reaction time. Continue reading