After President Emmanuel Macron’s snap legislative election resulted in a hung Parliament, France’s corporate leaders prepare to say goodbye to a decade of business-friendly conditions.
On Sunday, many executives breathed a huge sigh after the far-right party was neutralised by a new National Assembly where no political group has a majority. The feeling of relief was soon replaced with a sense of unease, as the political gridlock or the radical tax-and-spend plans of the left could derail the market-oriented changes made by Macron.
A business lobbyist said, “We have to wait but we’re all worried.” “We were on a good path.”
The business community has benefited from the pro-business campaign launched by Macron in 2014 during his tenure as Economy Minister and continued with his move to Elysee, in 2017. The executives were shocked by Macron’s decision to dissolve France’s National Assembly after the disastrous performance of En Marche during the European Elections in June.
In the last four weeks, many business leaders had to consider the possibility of an anti-European, protectionist far-right government. Some executives even courted Marine Le Pen’s Rassemblement National.
Although the leftwing alliance Nouveau Front Populaire came in first place on Sunday, it fell short of a majority. Executives are concerned about a government that is more likely to tax companies and wealthy people, adding pressure to the state’s already over-inflated finances.
The French employers’ trade association Medef said on Monday that Macron’s policies had “produced positive results in terms growth and employment” and should be “continued and amplify”.
The chairman of a manufacturing company that is part of the Cac 40 benchmark stock index expressed his “both relief and worry” after successful efforts to prevent the RN from gaining a majority in parliament through tactical voting.
The executive, like many of its citizens, backed a left-wing alliance in order to prevent a candidate on the far right from winning the constituency. The executive’s satisfaction was quickly replaced by deep displeasure when Jean-Luc Melenchon of La France Insoumise (the far-left alliance member) boasted that he had won the election.
He said, “What made me angry was that I and others who voted NFP in order to stop the RN had to watch Melenchon win the election only five minutes after polls closed.”
Before Macron called for early elections, the government had passed a final package of measures to promote business. The president signed the law right after the announcement.
The “attractiveness bill” included multi-voting rights in initial public offerings. This rule was designed to help Paris compete with Amsterdam for listings by helping entrepreneurs maintain control over their groups.
The government headed by Gabriel Attal also included a limit on redundancy payments to highly-paid traders. This was something that the big Wall Street Banks in Paris had demanded, stating they would stop recruitment efforts without it.
Banks such as Bank of America JPMorgan Chase Citi, Goldman Sachs, Morgan Stanley, and JPMorgan Chase have all moved bankers from the US to Paris under Macron. They were attracted by Paris’ lifestyle, as well as the tax incentives for expatriates.
France’s biggest companies are less at risk. The Cac 40 companies generate 80 percent of their revenue abroad on average.
A growing tech sector, however, is concerned that Macron’s efforts at building a “startup nation” could be reversed by those who care little for innovation.
We are relieved the extremes of the right and the left have not won an absolute majority. We are monitoring possible coalitions, but we are also aware that there are dangers associated with both extremes.
The manufacturing group’s chair said that there was a “good chance” that the leftwing coalition would fall apart within weeks. He said that the “bottom line” is that we will probably end up with centre-left government. “This will mean that France’s structural economic problems are unlikely to be resolved.”
He cited former socialist president Francois Hollande’s Sunday night comments about abolition of the flat tax, and the reversal of the wealth tax reform – two hallmarks for Macron’s business-friendly changes.
Some worry that the markets will force up financing rates, which could have an impact on a company’s ability to fund growth or investments.
Michel de Rosen of Forvia, the car parts supplier, stated that companies were in a wait-and see mode, and had halted their investment decisions between the European elections and the snap election, just before the European elections. This state of hesitancy “was not good for the economic situation”.
He said that the economic program of the leftwing bloc, or a blockaded parliament, could have a negative impact on public finances. This could increase the cost of borrowing for the government, and therefore interest rates. He said that many small and medium-sized businesses are more dependent on France’s market. If you raise rates, taxes, or salaries, this can put them in a difficult position. “We could be on the verge of a spiraling recession and joblessness.”
Some are more optimistic. One large tech investor said that the markets had ignored Sunday’s election results. Melenchon’s anticapitalist party, which has 74 seats, is more or less the same as it was in the previous parliament, according to him.
Even the paralysis of parliament was viewed positively by him. He said that the lack of new legislation and stability was very positive news.
A leading investment banker pointed out, too, that the extreme left is unlikely to be in power for the time being. As their fellow citizens, French business leaders were also focusing on Paris hosting sporting glory.
He said, “The Olympic Games will be here soon.” “Everyone is going on vacation in August. Everyone is taking a break from political issues.”
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