It’s time to undo the damage Macron did to post-Brexit Britain

              Financiers are already getting worried about the chaos that a Marine Le Pen victory      would unleash

 

Financiers were welcomed with extravagant dinners at Versailles as the red carpet was rolled out for them. Paris proudly declared itself as the largest hub for startups in the world, surpassing London. The French stock market also surpassed London's, becoming the largest in Europe.

Emmanuel Macron has consistently prioritized dethroning London as Europe's primary financial center after Brexit throughout his presidency. To some extent, he has achieved success in this endeavor. However, Macron's influence is rapidly diminishing, and Marine Le Pen's National Rally is expected to emerge victorious in the upcoming parliamentary election. This impending political turmoil has already begun to concern financiers, presenting an opportunity for the City to swiftly regain some of the lost business.

President Macron's tenure of seven years has yielded few notable accomplishments. While unemployment has slightly decreased and pensions have become less generous, France's budget deficit remains above 5% of GDP. The country's credit rating has suffered, and its growth rate is even lower than that of the UK, which is nothing to boast about.

Nevertheless, Macron has made significant strides in establishing Paris as a prominent financial hub. In 2021, JP Morgan relocated a trading center to the city, and Macron himself inaugurated its new offices. Goldman Sachs expanded its workforce in the French capital from 100 to 500 employees, while Citigroup, Bank of America, and hedge funds like Millennium Management and Point72 also expanded their operations there.

A flourishing start-up industry has emerged, particularly in artificial intelligence, spearheaded by new firms like Mistral, currently valued at $6bn (£4.8bn). In addition, in 2022, Paris made headlines by surpassing London as a larger equity market. The French capital surpassed Frankfurt as the primary EU competitor of the City, attracting numerous jobs and tax revenue associated with hosting a major financial hub. The president's hard work has indeed yielded positive results.

                      President Emmanuel Macron has little to show for his seven years in office

However, in recent weeks, he has completely squandered all of these achievements. Following disappointing European election results, his Renaissance party is now trailing behind National Rally and the Left-wing Popular Front in the snap general election. The Left has proposed a daunting agenda of wealth taxes and significant increases in corporate and personal taxes, which could potentially harm Paris as a financial hub. On the other hand, the Right's stance is less clear but includes tightening visa regulations, displaying hostility towards finance, and escalating annual spending by tens of billions, potentially leading to a clash with Brussels that might trigger a financial crisis.

No one should rule out capital controls if the pressure on the system becomes too great. Le Pen’s party has no interest in free markets and it shows no sign of caring what the capital markets make of its more radical ideas. Either way, the pro-business policies of the president, a former banker himself and a leader instinctively on the side of big finance, will be consigned to the past.

Macron's future seems uncertain. He might end up as a mere figurehead in a government dominated by Le Pen, confined to foreign policy matters, or he could find himself stuck in a political stalemate, possibly leading to an early retirement. This situation has led many banks to question the reliability of Paris as a financial hub.

The signs of this are already visible. French stocks, especially those of banks, have suffered significant losses, and London has once again surpassed Paris as the largest equity market in Europe. Furthermore, France's bond market is facing instability, with the risk premium on the rise.

Ultimately, the decision lies with the French people on the direction they wish to take. However, this presents an opportunity for the City of London. A strategic move could be made to regain some of the lost business.

Despite the upcoming Labour government in the UK not being particularly finance-friendly or inclined to reduce taxes, it has expressed a desire for growth strategy and revenue enhancement. Crafting a package that appeals to bankers currently based in Paris under Le Pen's administration would not be a difficult task.

One approach could involve exempting banks and asset managers from stringent employment laws, similar to what Macron implemented in France. These regulations primarily target low-wage workers, not financial professionals. Additionally, setting up dual-language compliance and regulation through the Bank of England, akin to the French post-Brexit, could entice firms to relocate from London.

Offering tax incentives, such as income tax reductions or reduced capital gains tax rates, could further attract French AI start-ups to consider London as a viable alternative.