France and the Euro

When the French elected François Hollande as President in 2012, the global left rejoiced. Mr. Hollande ran on a platform of protecting workers from capitalism. He wanted to raise the top income tax rate to 75%. Analysts predicted a political turn to the left across Europe, if not beyond.

But, anti-capitalist policies create blowback. We argued that in the high-tech age, Hollande's policies simply wouldn't work. If enacted, they would almost immediately do so much harm that others would not follow. The pendulum would swing the other way soon.

As we now know, Hollande figured this out. As a self-interested politician, he reversed himself to prevent a tailspin in the French economy. France's top income tax rate is 45%, not 75% and instead of increasing labor market regulation, Hollande made it easier for businesses to fire workers. He also gave companies the flexibility to reduce workers' hours and pay when the economy was in recession.

None of these shifts made France a free-market juggernaut. But, in the end, Hollande's Administration bears a resemblance to that of German Socialist Gerhard Schröder. He ran as a man of the economic Left, but governed as a man of the Center, enacting much of the labor-market deregulation that has made Germany the strongest economy in Europe.

Now, the pendulum has swung even more. In an election over the weekend, the French Establishment lost, while a political-upstart, Emmanuel Macron, emerged from a crowded field and is likely to win a run-off in two weeks to be the new president of France. Macron supports expanded free trade, a lower corporate tax rate, a lower payroll tax rate, limits on France's wealth tax, and more labor market deregulation.

From the standpoint of free markets, Macron was not the best candidate in the race. That title belonged to Francois Fillon, who ran on a platform as close to Margaret Thatcher and Ronald Reagan as any Frenchman could ever get. Fillon faced allegations he gave family members no-show jobs in his political office. In spite of this, he finished a strong third in this past weekend's election after leading in the polls last year.