Emmanuel Macron key to eurozone reform

The French president has to build consensus across the spectrum to make his eurozone vision work, writes Kyran Fitzgerald

Emmanuel Macron key to eurozone reform

The spate of scandals engulfing the Trump administration has prompted a major rethink among stock market participants, sparking a sharp sell off in equities and a drop in the value of the dollar.

As is the way with markets, this sell off has been reversed in part, but real concerns remain about a presidency that looks to be increasingly mired in scandal.

Ladbrokes has put the odds on a Trump impeachment, starting the process to an eventual possible departure at 5/1 on.

Others such as the respected academic Alan Dershowitz still view this as an unlikely outcome.

Nevertheless, the President’s ability to drive market friendly reforms through Congress looks to be stymied.

From an Irish perspective, any postponement in promised tax reforms and any weakening of Mr Trump’s America First agenda may be no bad thing.

But one must set against this the implications for international financial stability of ongoing troubles at the White House.

Certainly, political events have returned to shake up markets following a period of stock price growth and relative economic stability.

In Europe, the narrative looks to be more positive for now as election results reshape perceptions about prospects for the eurozone economy, though the forces of inertia remain strong while the prospect of a hard Brexit casts a long shadow.

The populist tide tailed off in Holland and France while Angela Merkel’s CDU appears to have seen off the right wing AfD movement in significant regional elections ahead of that country’s national electoral showdown in September.

The scale of Emmanuel Macron’s presidential second round victory - 66% to 34% - surprised many observers.

The new president has subsequently displayed considerable skills in selecting a prime minister and cabinet.

In particular, he has boosted his strong base among French socialists with his selection of a leading centre-right figure as Prime Minister and that of the respected centrist Francois Bayrou as Justice Minister.

Latest polling suggests that Mr Macron’s En Marche movement could capture a majority, or near majority in elections to the National Assembly next month, giving him space in which to govern.

A big question is whether the untested president can see off street demos against his planned labour market reforms.

Mr Macron has an ambitious agenda for eurozone reform that includes the establishment of a eurozone finance ministry, extensive financial transfers across the zone to less well off regions along with pooled borrowing arrangements.

He has built alliances in Germany, but these are mainly in the centre-left and currently, the Social Democrats are in retreat politically.

Ms Merkel’s ascendant CDU is much more sceptical. The Germans have not forgotten that they were dragged into the euro project by the French and will balk at a new round of commitments.

Mr Macron will be expected at the very least to show his mettle when it comes to reforming the French economy.

As the Tories coast to victory on June 8, politics across the water appear a bit of a sideshow, though the failure of the pro-remain Liberal Democrats to achieve traction could yet prove to be of some significance as decision day on a deal between Britain and the EU 27 approaches.

The big question mark hangs over Italy where that country’s membership of the eurozone is now closely questioned.

Italy is the only country in Europe to have witnessed a drop in per capital GDP since the launch of the euro. Its economy has grown by just 6% since 1998, whereas that of Germany has surged by more than 26%.

A big question is whether the Germans would be prepared to write a big cheque to keep Italy inside the eurozone tent should the anti-euro Five Star movement gain the ascendancy in upcoming national elections.

These are due next spring, but could take place a lot sooner.

A grand bargain appears to be forming, one in which labour market and tax reforms are secured as the price for a Marshall Plan of the early 20th century designed for creating jobs and reversing years of under-investment in infrastructure, social as well as physical.

Much will depend on the degree to which people can be persuaded to buy into Mr Macron’s vision, both at home and abroad.

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