Corporate France prepares for new era of political upheaval By Reuters

Written by Leigh Thomas and Helen Reid

Aix-en-Provence, France (Reuters) – France’s business elite are nervous about unstable politics, inexperienced policymakers, street protests and a wave of bankruptcies in the coming months, executives told a meeting in Provence on Sunday ahead of parliamentary elections.

Business leaders gathered in the southern French city of Aix-en-Provence on Friday and Saturday for the annual Davos counterpart, one of the main beneficiaries of President Emmanuel Macron’s pro-business reforms since he was first elected in 2017.

Far-right and left-wing parties want to roll back some of Macron’s reforms, from raising the retirement age to abolishing the wealth tax on financial assets.

Voters are likely to thwart Macron’s efforts to ease taxes and other restrictions on business, and his party is likely to suffer a decisive defeat in an election in which opinion polls show the far right winning the largest number of seats in parliament.

“We are very concerned about what is going to happen next,” said Ross McInnes, the aerospace company’s president. saffron (EPA:), told Reuters. “No matter what political makeup emerges in Sunday’s vote, we will likely have reached the end of a cycle of reform that began 10 years ago.”

Corporate leaders tread carefully on election issues in public panels, but they did not hide their anxiety about the rise of the far right and far left.

The far-right National Rally (RN) is unlikely to win an absolute majority, leaving the other parties to wonder whether they can form a coalition to form a government, an unprecedented and likely unstable undertaking in modern France.

“Nothing good comes from chaos. I don’t know what will happen, but this country has had social unrest before,” said the head of a major French industrial group.

Inexperienced leaders

Business leaders have expressed concern that politicians on the brink of power lack the experience to lead the euro zone’s second-largest economy, and they are also spooked by the prospect that France’s already substantial tax burden could grow further 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 election.

Political uncertainty has already sent France’s borrowing costs soaring since Macron called a snap election last month, with bond investors demanding the highest risk premium for equivalent German government bonds in 12 years.

Meanwhile, corporate investors investing in the real economy are also feeling uneasy about the political and economic outlook.

“We have continued to make investment decisions over the past few weeks, including in France, but if we had to make a really big investment decision, we would have waited until we had better visibility,” said Matthias Burkhardt, CEO of private equity firm Ardian France.

With political instability showing no signs of abating any time soon, executives say higher financing costs could soon be passed on to French companies as they prepare to renew ultra-low-interest loans made during the Covid-19 era at higher rates.

“This creates a scenario where we expect corporate defaults in France to continue to rise beyond what would have been possible had the political turmoil not occurred,” Ana Botta, head of economic research for trade credit insurance at Allianz (ETR:), told Reuters.

Macron’s pro-business reform policies have resented voters and have sparked sometimes violent street protests, such as the yellow vest movement in 2018 and protests last year over pension reforms.

Macron won a second term in 2022, but he failed to connect with many voters, many of whom see him as an ally of the political and economic elites who run the country.

The anti-immigrant, Eurosceptic RN has proposed Macron reverse a plan to raise the pension age from 62 to 64 in 2023 and cut energy taxes, saying these measures would be financed by cuts in welfare spending that benefit immigrants.

Meanwhile, the left-wing Popular Front coalition’s tax-and-spending program would revive the wealth tax, raise the minimum wage by 14% and scrap Macron’s pension reforms.

A minority government would be constrained by the risk of a vote of no confidence, which would likely make it difficult to push through new legislation.

In addition to the potential for government restrictions, business leaders were concerned about the ripple effects of the RN’s anti-immigrant policies on France’s future workforce.

“The demographics show that we have to attract talent,” McInnes said. “This country has been sustained by immigration for 300 years.”