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French government to delay fuel tax hike after violent protests

Key Points
  • The French government is to suspend a controversial rise in fuel tax
  • The planned fuel tax increase has caused widespread protests throughout the country and dramatic scenes of violence and civil unrest.
  • French media reported Tuesday morning that Prime Minister Edouard Philippe is to announce a moratorium on the planned fuel tax hike that has caused public anger in the country.
 Smoke rises during a protest by yellow vest protesters against rising fuel taxes near Arc de triomphe de l'Etoile in Paris, France on December 01, 2018. 
Anadolu Agency | Anadolu Agency | Getty Images

The French government is to suspend a controversial rise in fuel tax that has caused widespread protests throughout the country and dramatic scenes of violence and civil unrest.

French media had reported Tuesday morning that Prime Minister Edouard Philippe was ready to announce a moratorium on the planned fuel tax hike that has caused public anger in the country. Commenting around midday, Philippe said that "you'd have to be deaf not to hear the anger of the French," according to Reuters.

"After hearing (the) anger I am suspending for six months three fiscal measures including fuel tax increases," he said. The prime minister added that the violence that has beset France in recent weeks must stop and that no tax should endanger national unity.

The concession from the French government comes after leaders from the "Yellow Vest" movement, so-called because of the high visibility jackets worn by demonstrators, reportedly refused to meet Philippe on Tuesday for talks on how to diffuse opposition to planned fuel tax increases.

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Initial protests in previous weeks have now morphed into wider anger at a perceived drop in living standards, price rises and anti-government sentiment, particularly leveled at French President Emmanuel Macron who is seen by many as representative of the elite and wealthy.

Protests have turned increasingly dramatic and often violent. Saturday's protests in Paris were the worst to date with stores looted, cars torched and buildings and monuments damaged by some protesters.

The riots have been described as the "worst in a generation" and "pre-revolutionary." Three people have reportedly died as a result of the unrest, hundreds have been injured and hundreds arrested.

Stark choices

Analysts like Charles Lichfield from Eurasia Group say that the moratorium won't necessarily stop the protests, however.

"The government has decided to make small concessions now," Lichfield said in a note Tuesday. "This attempt to separate the softer end of the gilet jaune movement from those who protested violently last Saturday is unlikely to be enough."

"There are still no plans to reverse the initial tax hike from last January although this was what squeezed household budgets when the global oil price spiked in September-October. Moreover, the small concession gives protesters the impression they have intimidated the government and can obtain much more," he added.

Ahead of Tuesday's decision, Macron was seen to be facing a stark choice of either watering down his controversial carbon tax or potentially facing more trouble.

"The government's inability to respond to the demonstrations to date is explained mostly by the sui generis character of the yellow vest movement. Having organized themselves over the internet, the protesters lack formal structures of leadership," Antonio Barroso, deputy director of research at Teneo Intelligence, said in a note Monday.

Yellow vest protesters clash with riot police as part of demonstration against rising fuel taxes near Arc de triomphe de l'Etoile in Paris, France on December 01, 2018. 
Anadolu Agency | Anadolu Agency | Getty Images

"This makes it especially difficult for the government to establish a dialogue with them. Moreover, while the movement emerged in reaction to the proposed increases in diesel and petrol taxes, the protesters' agenda is much wider," he said, with complaints ranging from dissatisfaction over the fall in purchasing power in recent years and Macron's policies, which they claim benefit the wealthiest.

"As a result, the government's space to meet their demands is rather limited," Barroso noted.

Macron's approval ratings continue to fall, along with those of his prime minister. Now Macron's approval rating stands at just 23 percent, down six points from the previous month, according to an Ifop-Fiducial poll for Paris Match and Sud Radio published Tuesday. Philippe's rating has fallen 10 points to 26 percent.

France's CAC index was trading 0.5 percent lower Tuesday. Market watchers say they expect to see more unrest like that seen in France because of rising inequality and feelings of disenfranchisement among certain sections of society.

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"This type of social unrest is growing," Yacine Kanoun, portfolio manager at Shield Asset Management, told CNBC on Tuesday.

"I think what's happening is that there is a huge differentiation between the classes and I don't think everyone is participating in the same way in the economy."

Also speaking to CNBC Europe's "Squawk Box" Tuesday, Steen Jakobsen, the chief economist at Saxo Bank, said: "The biggest issue is that the middle class lost out big time in this crisis of inequality and I think it's coming through… The socio-economic dynamic is not in place to support any kinds of reforms and I think that's the lesson."