Al Jazeera Net correspondents
Paris- In an atmosphere of uncertainty and ambiguity regarding the results of the legislative elections in France, and the ambiguity surrounding the future majority in the National Assembly, anxiety is spreading at full speed in the country’s economic and financial circles.
Since President Emmanuel Macron announced the dissolution of Parliament on Sunday evening, June 9, following the historic results achieved by the National Rally in the European elections, the country has witnessed a political and economic shock that led to a rise in interest rates on state debt and a decline in the Paris Stock Exchange.
The sudden decline in French business confidence in the economic outlook after the results of July 7 is linked to fears caused by the current political situation.
In lightning election campaigns that lasted 3 weeks, coalitions of the three main blocs (the National Rally Party, the New Popular Front, and the Ennahda Party) were formed and outlined their economic programs in record time.
Low optimism
According to the latest major business consultations conducted by Opinion Way, a market research institute specialising in marketing research and opinion polls in France and the world, the index measuring business leaders’ optimism has fallen by 9 points in just one month.
Only 19% of managers said they were confident about the French economy’s prospects over the next 12 months, a figure that was 7 points lower than in May.
For its part, the survey of the Federation of Small and Medium-sized Enterprises – conducted from June 20 to 24 – revealed the main metrics of the various parties and coalitions among business leaders.
58% of those surveyed said they would postpone their investment projects if the New Popular Front won a majority in the National Assembly, 36% confirmed they would do the same if the National Rally won, and 12% if the Ennahda Party and its allies won a majority.
According to the managers of SMEs who responded to the Federation’s questionnaire, the result of the early legislative elections will have a strong impact on France but also on their own projects. 78% of them believe that increasing public spending would lead to the country’s bankruptcy and placing it under the supervision of the International Monetary Fund.
A state of anticipation
The results of the European elections and the uncertainty surrounding the next legislative body put financial markets in a state of anticipation. For example, the CAC 40 index (the main stock index of the Paris Stock Exchange) fell by 6.42% this month, its worst performance since June 2022.
Two days before the first round of voting, the main CAC 40 index closed down 0.68% on Friday, its lowest level since January 25. Since the beginning of the week following the dissolution of parliament, the euro has seen a slight decline against the dollar.
In contrast, the interest rates at which the country borrows in financial markets have risen, and the gap between French and German borrowing rates has reached its highest level since 2012. German debt is considered the safest in the euro zone.
Strategists at global investment bank and financial services firm Citi have drawn up three scenarios for market development based on the election results:
- Scenario 1: Reaching “good results” and not considering fiscal policy a major issue with a centrist coalition or minority government led by the National Rally, remains a weak possibility, not exceeding 20%.
- Second scenario: Its probability is about 40%, based on the principle of “lock-in” where financial risks and political uncertainty persist. In this case, either parliament will be suspended in the absence of a clear majority or the National Rally Party will lead a government that can implement some of its promises, while the public deficit remains high.
- Third scenario: The chances are estimated at 40%, which is the victory of an “extreme” government of the right or left party that will seek to implement most of its measures and programs, which would lead to the debt rising to a level closer to that of Italy.
Various programs
Far-right leader Jordan Bardella told France 2 that scrapping the pension reform, which was adopted in April 2023 and raises the legal retirement age to 64, was no longer a priority in his party’s election campaign, having long been one of its first opponents.
Regarding the energy file, the National Rally wants to reduce the value-added tax from 20% to 5.5% on energy products (electricity, fuel and gas), but after it proposed negotiating an exemption from the European electricity market to be able to implement a price ceiling, it withdrew this proposal during the campaign. .
The coalition of left-wing parties wants to freeze the prices of basic goods such as some food products, energy and fuel, as well as increase the minimum wage by 200 euros and propose a 10% increase in the index point for civil servants.
As for the measures proposed by the candidates in their electoral programs, the economic players announced, by an overwhelming majority (82%), that they do not support the implementation of a minimum wage of 1,600 net euros per month and a general reduction in the legal weekly working time to 32 hours.
According to a survey by market research institute Opinion Way, 41% of business owners are ready to take drastic measures. More than one in 10 entrepreneurs (14%) will have no choice but to close their doors, while three in 10 (27%) will lay off some of their staff to save their businesses.
If half of them accepted the party programmes, this would lead to inflation by passing this wage increase on to selling prices, and only one manager in ten would be able to absorb this additional cost into their profit margins.
