France’s Business Community Braces for Turbulence After the Vote

(Bloomberg) -- The political turbulence unleashed by President Emmanuel Macron’s decision to call a snap election looks set to extend well beyond Sunday’s second round of voting, prompting some executives gathered at a conference in southern France to express their concerns about the country’s emerging business climate.

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No matter which party comes out on top in the French parliamentary election, several said they see the vote as the beginning of a more turbulent period. Even if an absolute majority for Marine Le Pen’s far-right National Rally is averted, the alternative is gridlock, making it harder for France to address its swollen budget deficit and ending Macron’s pro-business reform plans. The situation has translated into some dumping of French assets, driving up borrowing costs up and pulling down stocks.

That’s hurting the image of France, which has been the top destination in Europe for foreign direct investment, said Matthieu Courtecuisse, chief executive officer of management consulting firm SIA Partners.

“For a couple of years it was ‘Choose France’ and now it’s ‘Why France?’” he said.

Courtecuisse was among a shrunken band of CEOs, political scientists and economists who gathered in the southern French city of Aix-en-Provence for an annual summer conference. Government officials and some executives canceled their appearances and the event was curtailed by a day to make way for voting. Those who attended found themselves discussing the implications for the economy of the uncharted territory nation is entering.

“The main issue is not what will happen Sunday, it’s how we will manage our debt and our public deficit because at the end of the day the financial trajectory is what matters,” Marie-Pierre de Bailliencourt, director general of the Institut Montaigne, said Friday in an interview on Bloomberg TV. The real “moment of truth” will come later this year when the new government attempts to pass a budget, she said.

The think tank estimates that the campaign pledges by the leftist New Popular Front would require nearly €179 billion ($194 billion) in extra funds per year. The far-right National Rally’s plans would cost about €71 billion, while Macron’s party and its allies would incur extra spending of close to €21 billion.

France’s main business lobby Medef, which traditionally steers clear of taking public stances on politics, has slammed the far-right and the left platforms as “dangerous” to the economy.

The fiscal situation was already weighing on sentiment in France before the snap election was announced, with Macron’s current government forced to revise long-term plans to plug holes in the budget earlier this year. S&P Global Ratings downgraded France last month and the European Union has put the country under an excessive deficits procedure.

Six surveys released between Thursday and Friday show that the far-right National Rally is on course to win 170 to 250 of the 577 seats in the lower house of parliament. That would be significantly below the 289 needed to pass bills easily and push through its agenda. The New Popular Front alliance is projected to win 140 to 198 seats, while Macron’s group is on track for between 115 an 162.

Energy was among the hot-button issues of the bruising campaign, and both the far right and left have promised costly subsidies to shield consumers.

“One of the reasons we’re in the situation we’re in today in France is partly because of the high price of energy,” said Arnaud Pieton, CEO of Technip Energies, an engineering and technology company. “As long as we haven’t achieved energy independence in France, we’ll remain subject to the fluctuations of the world, to the goodwill of certain countries in certain blocs.”

Meanwhile, for corporate France, the new emerging reality may be a sea-change after seven years of Macron having a firm enough grip on policy making to drive through his pro-business agenda based on loosening labor laws and cutting the tax burden. Rival parties vying for a sway over the future government have pledged U-turns, including costly moves to abandon Macron’s pension reform, or massive tax increases. Even Macron’s Renaissance party has revamped its manifesto with new spending commitments.

For now, some companies are they saying the expect to grow regardless of who heads the next government. Clean-power developer Neoen SA is one such entity.

“Neoen in France is mainly active in solar, so we’re not going to slow down whatever the majority is,” CEO Xavier Barbaro said in an interview with Bloomberg Television in Aix-en-Provence Friday. “We can live with any government.”

Taavi Madiberk, CEO and co-founder of Estonian battery developer Skeleton Technologies, said the company will go ahead with its planned investment in Toulouse regardless of the outcome of the elections.

“We will go ahead with our industrial investment in France,” he said, citing the presence of customer demand and partners such as the university of Toulouse, Airbus SE and the supply chain.

--With assistance from Alexandre Rajbhandari, Francois de Beaupuy, Angelina Rascouet and Valentine Baldassari.

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