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Brexit: Postcard from Paris

Friday, 20 July 2018
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Thursday, 11 May 2017

So, what will Emmanuel Macron bring to the Brexit negotiating table? Macron is a committed Europhile, but his victory in the French Presidential election is nonetheless a positive outcome for the UK in that it preserves stability in the EU. In speaking to Macron, Theresa May reportedly reiterated that "the UK wants a strong partnership with a secure and prosperous EU once we leave".  By contrast, Le Pen's strongly nationalist, anti-establishment agenda would have sparked a crisis in the EU, making it difficult for the UK to make any headway with negotiations. 

However, the Macron presidency is likely to strengthen the EU's hand. Macron has confirmed his resolve to ensure that the remaining EU nations are "strongly coordinated" in the Brexit negotiations, and that the UK is not dealt any favours. His hardline approach is apparent in his criticism of the EU for agreeing to the special status deal negotiated by David Cameron prior to the referendum last year, which he considers set a dangerous precedent for member states "toying with Europe". This suggests that, with Macron at the helm in France, a bespoke deal between the UK and EU, which represents a radical departure from existing models such as those agreed with Switzerland, Norway and Canada, may be more difficult to achieve.  

EU institutions will also take comfort from another defeat of a populist, nationalist movement, following on the heels of the defeat of the far right candidates in the Dutch and Austrian elections, perhaps signalling that the EU project is less in jeopardy than some had feared, thus putting them on the front foot in negotiations.

In France, Brexit is seen as a British problem and a French opportunity. Among other spoils, France is hoping to win up to 22 of the UK's 73 seats in the European Parliament, as well as the race to host the HQ of the European Medicines Agency and/or the European Banking Authority.  Macron has also been vocal about the possibility of renegotiating the Le Touquet Treaty which allows British Customs officials to carry out passport checks in Calais, which is seen as too favourable to the UK, effectively moving the border back to UK soil.

The UK can also expect Macron's promised economic reforms, aimed at simplifying the tax system and liberalising the labour market, to be used to woo financial institutions seeking to relocate from London, although the new president has a mountain to climb in persuading the French union movement to accept a further reduction in employment protection. 

Restrictive employment laws have long made it difficult for France to attract and retain talent from overseas, and have weighed heavily on its global competitiveness, as highlighted in the recent Global Competitiveness Report from the World Economic Forum. Labour reforms introduced by the Hollande government in 2016, facilitating hiring and firing of employees, have not prevented excessive labour regulation topping the list of the most problematic factors for doing business in France, according to that report. High rates of tax and tax regulation are also high on the list.

Some of the key legislative proposals put forward by Macron as part of his reform agenda to address these issues include:

  • Allowing employers to negotiate certain employment rights with the workforce rather than having to adhere to the statutory framework (although the law will still contain fundamental protections such as minimum wage, maximum working hours and equal pay)
  • Reductions in both employer social security contributions and income taxes
  • Levying additional contributions on employers who rely heavily on short-term contract labour
  • A clampdown on tax fraud and increased efforts to levy tax on profits generated from France by online businesses and
  • A push on training and apprenticeships.

The scale of the challenge faced by Macron in reforming and reviving the French economy has been compared to the structural reforms introduced in the UK in the 1980s during the Thatcher era. Ironically, Macron may ultimately push for some of the EU reforms sought by the UK prior to the referendum if his presidency is going to deliver his promised reform agenda and win over some of Le Pen's supporters, although domestic concerns are likely to dominate in the short term, as he seeks to form a new, centrist government in the French parliamentary elections in June. Eurozone reforms are likely to be off the agenda at least until after the German elections in late September.
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William Howard

Corporate, Paris
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David Patient

Managing Partner and Corporate
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