Why Macronomics Hit a Wall

Key Concepts

• Supply-Side Economics: Economic policies focused on reducing taxes and regulations to stimulate production and investment.
• Debt-to-GDP Ratio: A financial metric comparing a country’s public debt to its Gross Domestic Product, indicating its ability to repay debt.
• Unicorns: Privately held startup companies valued at over $1 billion.
• Zombie Companies: Businesses that are barely profitable and reliant on continued financial support to stay afloat.
• Productivity Growth: The rate at which the efficiency of production increases over time.
• Zero-Sum Thinking: The belief that economic gains by one party necessarily come at the expense of another.
• BPI France: The French state investment bank.
• "Whatever it Takes" Moment: A commitment to extraordinary measures to address a crisis, referencing Mario Draghi’s 2012 pledge to save the Euro.

France Under Macron: A Troubled Renaissance

This analysis examines the economic performance of France under the presidency of Emmanuel Macron, detailing the successes, failures, and underlying challenges facing the nation’s economy. Despite initial ambitions to revitalize the French economy through supply-side reforms, France has experienced rising debt, sluggish growth, and persistent structural issues.

Initial Ambitions and Supply-Side Reforms (2017-2019)

In 2017, Emmanuel Macron assumed the presidency with a clear economic agenda: to implement supply-side policies aimed at lowering taxes, reducing unemployment, and curtailing public spending. The goal was to “unleash the energy of the country” and create a more dynamic economy capable of sustaining France’s generous welfare system. Key policies included:

• Tax Cuts: Lowering taxes for both companies and individuals, with a flat tax capping investment income at 30%.
• Wealth Tax Abolition: Replacing the wealth tax with a tax on real estate.
• Startup Nation Initiative: Promoting entrepreneurship and innovation, exemplified by the launch of Station F, the world’s largest startup campus.

These measures aimed to address a perceived anti-entrepreneurial climate and attract foreign direct investment (FDI). The strategy proved initially successful, with France overtaking Germany and the UK as the top FDI destination in Europe by 2019 and remaining so in 2024. The number of “unicorns” (companies valued at over $1 billion) increased tenfold, from 3 to 30, between 2016 and 2025. Station F saw its companies raise €1 billion in the first nine months of 2025, equivalent to the entire country of Italy’s startup funding. Mistral AI is highlighted as a success story in the AI sector, with approximately 80% of Station F’s companies focused on AI.

Macroeconomic Performance and Emerging Challenges (2020-2027)

Despite these positive developments, France’s macroeconomic performance has been disappointing. By the end of 2025, the debt-to-GDP ratio had risen to 117%, projected to reach 120% by 2027. GDP growth remained low, at 0.7% in 2025, below the Eurozone average of 1.3%. This outcome represents a paradox, as Macron came to power promising strong public finances and economic dynamism.

Several factors contributed to these challenges:

• External Shocks: The Gilets Jaunes protests, the COVID-19 pandemic, Russia’s war in Ukraine, and the resulting energy crisis all disrupted economic progress.
• Pension Reform Controversy: The 2023 pension reform, despite being passed, sparked mass protests and political tensions, pausing implementation in December 2025.
• Political Instability: The dissolution of Parliament in 2024 added to the economic uncertainty.

Labor Market Reforms and Unemployment

Macron’s government achieved some success in reducing unemployment, a long-standing issue for France. Unemployment fell from 10.4% in 2015 to 7.4% in 2024. This was attributed to structural reforms that increased labor market flexibility, allowing companies to hire and fire more easily while providing retraining opportunities. However, youth unemployment remained high at 18.5% in 2025, significantly higher than Germany’s 6.6%.

The system of “dismissal by agreement,” where employees can claim unemployment benefits even when mutually agreeing to leave their jobs, was criticized as costing the state an estimated €10 billion in 2024 and incentivizing unemployment. The introduction of a “bonus-malus” system aimed to make firms accountable for layoffs.

The Burden of Social Security and State Intervention

France’s generous social security system, funded primarily by employee contributions, faces demographic challenges. The ratio of workers to pensioners has declined from 4:1 in 1960 to 1.8:1 in 2023, necessitating rising contributions that erode workers’ purchasing power.

The French state plays a significant role in the economy through subsidies and interventions. In 2023, French businesses received between €108-211 billion in tax relief and subsidies, often with limited follow-up or monitoring. The pandemic saw a €150 billion state-guaranteed loan program, and the energy crisis prompted €26.3 billion in subsidies. These measures, while preventing immediate collapse, contributed to the rise of “zombie companies” reliant on state support. BPI France funds over 50% of companies at Station F, demonstrating the extent of state investment.

Productivity and Long-Term Challenges

Despite initial progress, France’s productivity growth has stalled. Productivity growth, measured as value added per hour worked, has been declining since the turn of the century and worsened after COVID-19. Contributing factors include:

• Low-Productivity Service Sector: The dominance of a low-productivity service sector.
• Slow Technology Adoption: Slower adoption of technology in some sectors.
• Heavy Regulation: Excessive regulation in certain industries.
• Underinvestment: Insufficient investment in key areas like education and infrastructure.

The Bank of France attributes a recent drop in productivity to the rise in apprenticeships and delayed bankruptcies resulting from state subsidies. Long-term “time bombs” – issues like declining education quality and a lack of innovation – threaten future growth. France is losing ground in innovation, with major tech and biotech firms concentrated in the US and China.

A Zero-Sum Mentality and Political Polarization

The analysis concludes that France is trapped in a “zero-sum” mentality, where economic life is viewed as a fixed pie to be divided rather than a pie that can be expanded through growth and innovation. Current political debates focus on redistribution rather than policies to improve education, address climate change, or foster innovation. This, coupled with rising debt and political instability, makes addressing these economic challenges increasingly difficult.

Despite these concerns, some optimism remains that France’s startup ecosystem is resilient enough to continue growing. However, the need for a more mature and collaborative approach to economic policy is emphasized, with a focus on long-term investment and structural reforms. As stated in the video, “We have to invest for our children.”