Macron Supports a Divided EU

As Emmanuel Macron was inaugurated yesterday as the youngest President in France’s history, most of Europe breathed a sigh of relief. However, several countries have voiced concern for Macron’s support of a multi-tiered level of EU participation which threatens to divide Eastern and Western Europe. Poland, Hungary, and Romania are the strongest critics of the two-speed plan for the EU post-Brexit, and have stated that varying forms of integration will eventually cause the EU to break apart. Macron and other supporters of the system have countered that Eastern Europe is stealing business away from the more prosperous countries thanks to the EU right of freedom of movement, coupled with lower employment costs.

Macron backs the EU, but suggests a multi-tiered membership.

French Election Destroys Populist Agenda

Macron was elected as France’s new president following a heated campaign which first broke the country’s two establishment parties, and then served as a referendum on the future of populism in Europe. After reaching the runoff election, he beat Marine Le Pen by a wide margin, nearly two to one in the final polls. This was considered a win for the country’s business community, as Macron had threatened to pull out from the EU and reinstate the franc as the national currency. Analysts worried that the withdrawal of France following the departure of the U.K. would cause the EU and euro to crash.

Macron Win Satisfies EU

However, in order to win over some of the more right-wing members of the electorate, Macron had to temper some of his views regarding the EU. One issue that drove much of Le Pen’s support was the relationship between France and some of the other EU countries, such as Poland and Greece. France is currently the third largest EU economy, after the U.K. and Germany. The country has relatively high taxes, and has paid a major portion of the bailouts which have allowed several of the less stable countries to avoid adopting full austerity measures.

France Faces Single Market Problems

One specific campaign issue involved a Whirlpool factory which had announced its intention to move its production from France to Poland. Marine Le Pen stated that under her administration, factories which threatened to leave the country would be nationalized, thereby guaranteeing the jobs for French citizens. Macron, as a strong defender of the EU, could not go as far as to completely criticize the value of the single market, he did call out Poland for taking advantage of the differences in average salaries to exploit the labor force.

Downsides of Free Trade

Statements such as these highlight the fears of many Eastern European leaders, who say that they face discrimination at the EU negotiating table on a constant basis. Mateusz Morawiecki, Poland’s Finance Minister, responded to Macron by saying that “It cannot be that when Poland is an export market then it is good, but when it attracts foreign investment, including from France … that’s not good anymore.” Macron has also suggested a common budget that would be set aside for countries that have adopted the euro, commonly referred to as euro zone nations. EU members that are not part of this group are concerned that this will leave less money available to encourage economic growth.

Euro Zone Discrimination

The gap between the 19 euro zone countries and the remaining EU members who still retain a national currency has created a lot of bad feelings already, given that the euro zone countries are also invited to talks that cover the activities of the European Central Bank, which in turn steers much of EU policy, albeit indirectly. Still, backers of the two-speed plan say that it is the only practical solution. As the EU tried to expand, eventually the hope is that there will be a confederation of at least 30 countries. This will make it nearly impossible to reach common agreements that all partners can agree upon.

How Will a Multi-Tiered EU Affect Trading?

If the euro zone countries create a system that confers additional benefits within the group while excluding Eastern Europe, then the euro stands to gain. The system would also allow the euro zone countries to make separate deals with a post-Brexit U.K., which could cause a rise in the pound, as well as supporting growth in the London FTSE index. Additionally, uncertainty about the future of Eastern Europe encourage investors to move funds into gold.