Legal development

France at a Crossroads: Navigating Through Post-Election Turbulence

Gray abstract

    The outcome of French general elections: instability is bound to become the new normal

    The prospect of either the Rassemblement National (RN) or a left-wing coalition led by La France Insoumise (LFI) coming to power in France presents significant implications for the French financial market.  This article examines the potential consequences of this new political landscape in three critical areas: protectionist policies, legal uncertainties, and fiscal instability. Businesses must prepare for these scenarios by re-evaluating their value chains and investment strategies to mitigate risks. 

    Protectionist Policies: Impact on Foreign Direct Investment and on Multinational Corporations

    Both the RN and LFI have expressed protectionist economic agendas.  RN's policies include prioritising French companies and workers, which could manifest as stricter regulations on foreign ownership and operations.  LFI, on the other hand, advocates for economic policies that may involve higher taxes on multinational corporations and more stringent labor laws.  Such protectionist measures could significantly deter foreign direct investments (FDI), which have been on the rise during the Macron presidency.  Companies might face increased barriers to entry and operational restrictions, making France a less attractive destination for investment.  This could result in reduced capital inflows, stifling innovation and economic growth. 

    Additionally, multinational corporations operating in France would need to navigate a more challenging regulatory environment.  The increased cost of compliance and potential restrictions on repatriating profits could reduce the profitability of operating in France.  Consequently, businesses might consider relocating their operations to more investment-friendly countries within the EU or beyond. 

    Legal Uncertainties triggered by Challenging EU Norms

    Both political entities have expressed scepticism towards EU norms and regulations.  RN's nationalist stance and LFI's anti-austerity position could lead to conflicts with EU rules and institutions.  This could result in legal uncertainties as France might challenge or disregard EU directives and regulations, particularly those related to economic and financial governance.  Such legal uncertainties can create a volatile business environment. Companies might face unpredictable regulatory changes, affecting contracts, supply chains, and market access.  For businesses dependent on seamless integration with EU markets, this unpredictability could pose significant risks, necessitating contingency planning and increased legal costs. 

    Fiscal Instability and Increased Deficits

    The economic programs proposed by RN and LFI involve significant public spending.  RN's focus on welfare state expansion and LFI's commitment to social programs could lead to even more substantial budget deficits.  While these policies aim to address social inequalities, they could strain public finances, which are already heavily indebted.  Higher deficits could result in the downgrading of France's sovereign debt rating.  Rating agencies may view the increased spending and potential conflicts with EU fiscal rules as risk factors.  A lower credit rating would increase borrowing costs for the French government, exacerbating fiscal challenges and potentially leading to austerity measures in the long term. 

    Business Strategies: Re-evaluating Value Chains

    Given these potential developments, businesses must re-evaluate their value chains as a matter of urgency.  This includes assessing the viability of maintaining operations in France versus relocating to other EU countries.  Diversifying supply chains to mitigate the risk of disruption from regulatory changes is crucial.  Companies should also reconsider their investment priorities. Increased focus on sectors less vulnerable to regulatory and fiscal changes might offer better stability.  Additionally, businesses should enhance their financial resilience by maintaining liquidity and reducing dependency on volatile markets. 

    In conclusion, businesses operating in or investing in France must proactively adapt their strategies to mitigate these risks and ensure long-term sustainability. 

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest