Sipping champagne at the Elysee Palace has become a May ritual for the princelings of high finance. Among Europe’s leaders, President Emmanuel Macron, a former Rothschild banker, has striven hardest for Paris to displace the City of London as the Continent’s financial hub in the post-Brexit era.
The fine drinking and dining has been backed up with sweeping regulatory reforms designed to show France’s winning ways as a financial centre.
The annual ‘Choose France’ summits have scored notable triumphs. Morgan Stanley has tripled the numbers of its Paris-based staff to 450 and overseas banks including First Abu Dhabi and Nigeria’s Zenith Bank have opened new branches amid much hoopla.
Bond markets are starting to price in the prospect of Marine Le Pen’s National Rally winning the two-round parliamentary poll on June 30 and July 7
Emmanuel Macron, a former Rothschild banker, has striven hardest for Paris to displace the City of London as the Continent’s financial hub in the post-Brexit era
But Macron’s offensive looks in danger. Liz Truss may have fatally undermined confidence in Tory economic competence. But her mayhem on global markets will be as nothing if Marine Le Pen’s National Rally (RN) wins the two-round parliamentary poll on June 30 and July 7.
It may be too soon for the City, which has held on to its lead in most areas of finance to declare victory over its prospective rival. Yet if there were a French word for schadenfreude one could not blame the denizens of the Square Mile for enjoying the moment.
Bond markets are starting to price in the prospect of a Far-Right victory which upends Macron’s ability to govern from the centre.
Imagine how the markets would react to the choice of Jordan Bardella, a 28-year-old unknown, as prime minister with plans to slash taxes, rebel against Europe’s costly climate change agenda and declare war against immigration. All of this would be alarming enough if France was not already a budgetary basket case.
Amid temporary triumphs such as the sight of the value of stocks on the Paris Bourse overtaking those on the London Stock Exchange (now reversed), little attention has been paid to the soft underbelly of Macron’s rule.
Whoever dominates policymaking after the elections, and in the run-up to the next presidential vote in 2027 (when Macron cannot stand), will have to deal with a bloated budget deficit and a level of debt which no UK government, of whatever political shade, would countenance. Doubtless Paris will put on an elegant show for the Olympics. Even the shabby Champs-Elysees is getting a facelift with a new LVMH emporium. But a budgetary horror show could yet spoil the party. Last year the budget deficit was £147billion – more than 5 per cent of national output. France has among the highest debt loads in Europe at £2.1trillion or 111 per cent of output (much larger than the UK which the Office for Budget Responsibility says will peak at 93.2 per cent in 2028-29).
The yield on French government bonds has jumped to 3.1 per cent which is the highest level since 2012. The gap with German bonds – the gold standard in the Eurozone – has risen to 0.7 per cent.
The market fear is that if Le Pen gains a majority the borrowing to output ratio is certain to soar. Any hopes of meeting the 4.5 per cent target set for 2027 would go up in smoke. Even before the RN threat came into view the IMF was warning the economic assumptions made by the Macron government are ‘somewhat optimistic’.
France is an important trading partner for Britain and its co-operation on immigration will be vital to the next UK government. It is not in our national interest to see French politics in turmoil and its economy buried under a landfall of public and private debt.
Yet it is hard to feel sympathy for a country which sought to make economic and financial life as difficult as possible for ‘la perfide Albion’ after Britain had the temerity to leave the EU.
