Social and political developments in France will constrain the government’s ability to pass reforms to try to make the country more competitive. At the same time, they will weaken Paris’ role in shaping EU policy. French President Emmanuel Macron’s election in 2017 was seen as a significant victory against nationalist and populist forces in the European Union, but disappointment with the French government creates fertile ground for new episodes of social unrest and the strengthening of extremist forces.

The yellow vest movement quickly evolved from opposition to the fuel tax increase into a broader demand to improve the purchasing power of middle-class families. Combined with demands to roll back Macron’s pro-business agenda, this shows that there is a large sector of the French electorate that is vocally disappointed with the president’s policies. Despite Macron’s reformist push, the recovery of the French economy remains slow and uneven. France’s unemployment rate is around 9 percent, which is one point lower than it was when Macron took office but is still the fourth-highest in the European Union — and more than twice Germany’s unemployment rate. According to the European Commission, France’s economic growth will slow to 1.6 percent in 2019, from an estimated 1.7 percent in 2018. Moreover, the French Economic Observatory, an independent think tank, has warned that Macron’s policies have reduced the purchasing power of the bottom 5 percent of French households while increasing that of the top 5 percent.

Graphics showing the purchasing power, unemployment rate and income inequality in France.

The emergence of the yellow vests, a movement with no direct connections to any political parties, non-governmental organizations or trade unions, is not a new phenomenon in France. Similar grassroots movements, like the “red caps” (who protested a tax on trucks in 2013) and the “nuit debout” (who protested labor reforms in 2016), have emerged in recent years. The arrivals of such movements show that France’s traditional channels of representation are failing to absorb the whole spectrum of social discontent. To some extent these grassroots movements tend to represent a temporary challenge for the French government, because movements without a clear leadership and organization tend to fade away quickly. But these movements are also problematic because they don’t have a clear leadership the government can negotiate with. Social unrest can escalate quickly and incite other groups to join the protests, which is what has happened with the yellow vests.

Next year’s elections for the European Parliament, scheduled for May, will show whether these parties can capitalize on the ongoing social discontent.

France’s domestic issues will constrain its ability to influence developments at the European level. France wants deep reforms in the eurozone, including the introduction of a separate budget for the currency area, the strengthening of its bailout fund, and the completion of the banking union. But these reforms require a broad consensus at the EU level, and France will struggle to find it.

France’s main partner in the European Union, Germany, is dealing with political problems of its own that reduce Berlin’s ability to make concessions to Paris. At the same time, the countries in Northern Europe that oppose France’s proposals are becoming increasingly assertive. These countries, commonly known as the New Hanseatic League, want to limit, and if possible abort, France’s plans for eurozone reform. The fact that Italy has a euroskeptic government that is challenging the EU’s fiscal targets is giving ammunition to those northern countries that oppose increasing financial risk-sharing in the eurozone.

There are early signs that this resistance to France’s proposals is working. Germany and France recently agreed to create a budget for the eurozone. But, contrary to France’s original proposal, it will be a part of the broader EU budget, which means its approval will require unanimity. Moreover, Berlin is pushing for a small budget, contrary to Paris’ request of a budget that represented “several points” of the European Union’s GDP. France also wanted to turn the European Stability Mechanism into a European Monetary Fund with full powers to assist countries in financial distress. However, EU finance ministers meeting on Dec. 4 only agreed to grant the mechanism a greater participation in the design and monitoring of financial assistance programs in coordination with the European Commission. And plans to introduce a deposit insurance scheme for eurozone banks were kicked down the road.

To make things more complicated, new members will be appointed in 2019 to key EU institutions such as the European Commission and the European Central Bank. The appointments will require significant negotiations among EU member states and will be another source of friction between Northern and Southern Europe over the future of EU policy. France’s rivals will try to take advantage of Macron’s domestic weakness to contain Mediterranean Europe’s influence on the future of the European Union. Even if EU governments manage to keep the discord within tolerable margins, the mere process of appointing new officials will slow policy process at a continental level and put a limit on France’s ambitions.