France’s business elite are worried about political instability, inexperienced policymakers, street protests and a possible wave of bankruptcies in the coming months, business leaders said meeting in Provence ahead of parliamentary elections on Sunday.
Business leaders gathering in the southern city of Aix-en-Provence on Friday and Saturday for France’s annual Davos trade meeting have been the biggest beneficiaries of President Emmanuel Macron’s pro-business reforms since he was first elected in 2017.
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Far-right and far-left parties want to roll back some of Macron’s reforms, from raising the retirement age to abolishing the wealth tax on financial assets.
In an election where polls show the far-right winning the most seats in parliament, voters are widely expected to hand Mr Macron’s party a decisive defeat and thwart his efforts to ease taxes and other restrictions on businesses.
“We are very concerned about what’s going to happen next,” Ross McInnes, chairman of aerospace company Safran, told Reuters.
“Whatever the political makeup that emerges from Sunday’s vote, we are probably at the end of a reform cycle that began 10 years ago.”
While business leaders studiously avoided talking about the election on the public panel, observers made no secret of their anxiety about the rise of the far right and far left.
The far-right Rally National (RN) is unlikely to win an absolute majority, leaving other parties to consider whether they can form a coalition government – something unprecedented in modern France and likely to be unstable.
“Nothing good comes from chaos. We don’t know what will happen but this country has experienced social unrest before,” said the head of a major French industrial group.
Inexperienced leader
Business leaders expressed concern that politicians in power lacked the experience to lead the euro zone’s second-largest economy and feared that an already substantial tax burden could increase under a left-wing coalition.
RN leader Jordan Bardella, 28, could become France’s youngest prime minister if his party wins a majority in Sunday’s general election.
Political uncertainty is already pushing up French borrowing costs, with bond investors demanding the highest risk premium in 12 years for comparable German bonds since President Macron called early elections last month.
Meanwhile, corporate investors in the real economy are also concerned about the political and economic outlook.
“We have been making investment decisions over the past few weeks, including in France, but if we had to take really big investment decisions we would wait until the outlook was better,” said Matthias Burghardt, CEO of private equity firm Ardian France.
With no sign of political unrest calming anytime soon, rising financing costs could soon be passed on to French companies preparing to refinance ultra-low-cost COVID-19-era loans at higher interest rates, executives said.
“This creates a scenario in which we expect corporate defaults in France to continue to be higher than they would have been without the political turmoil,” Ana Boata, head of economic research at Allianz trade credit insurance, told Reuters.
Macron’s push for pro-business reforms has backlashed voters and sparked sometimes violent street protests, such as the Yellow Vest movement in 2018 and demonstrations against retirement reforms last year.
Although Macron was elected for a second term in 2022, he has failed to connect with many voters who see him as a product of the closely intertwined political and business elite that runs the country.
The anti-immigration, eurosceptic RN has proposed reversing Macron’s planned increase in the retirement age from 62 to 64 in 2023 and cutting energy taxes, arguing that these measures could be paid for by cuts in welfare spending that benefit immigrants.
Meanwhile, the left-wing Popular Front coalition’s “tax and spend” platform would reinstate a wealth tax, raise the minimum wage by 14% and repeal Macron’s pension reforms.
A minority government would be constrained by the risk of a no-confidence vote, making it likely to find it difficult to push through new legislation.
In addition to the possibility of government dysfunction, business leaders are also concerned about the knock-on effects that RN’s anti-immigration policies could have on France’s future workforce.
“The demographics tell us we need to attract talent,” McInnes said. “This country has been fueled by immigration for 300 years.”
