(Bloomberg Businessweek) -- President Emmanuel Macron’s bet on regaining control of France with snap elections backfired spectacularly, but the resulting political gridlock means investors and business have escaped with the least worse outcome.
Coordinated maneuvers by disparate political forces aimed at blocking the ascension of Marine Le Pen’s far-right National Rally delivered a hung parliament where no group has anything approaching a majority. With Macron unable to call fresh elections for at least a year, France is saddled with a legislature riven with ideological and personal divisions so great that it’s unlikely it will enact any meaningful changes to current policy.
Investors initially panicked when Macron dissolved parliament on June 9, because they feared he’d opened a door for National Rally to take control of the legislature and drive through disruptive and costly laws, including much tighter immigration controls. The prospect also unsettled many in business—especially those in the growing tech sector, which has benefited from the creation of a visa that fast-tracks hiring nationals from outside the European Union.
In a turbulent campaign, the specter of a far-right France was joined by the ghost of a far-left past. Firebrand Jean-Luc Mélenchon brought moderates and greens into an electoral pact geared at resuscitating Gallic dirigisme, with its soak-the-rich taxation and boundless public spending.
Either extreme would have laid waste to Macron’s reform project. Over seven years in office, the youngest-ever leader of the republic has worked to transform France’s reputation as a country hostile to business and finance. His corporate tax cuts are unpopular with the public, but foreign capital has flowed in, helping to turn the tide of deindustrialization and drive unemployment to a four-decade low.
The outcome of the elections means it will be hard to undo much of this. Leftist parties won the largest number of seats in the National Assembly, but not enough to enact their more radical policies, such as sharply increasing the minimum wage or rolling back the recent increase in the retirement age. “We must prevent any reversal or revision of supply-side policies,” said Finance Minister Bruno Le Maire. “We must make our best efforts to build a majority based on projects that continue to defend this.”
Medef, France’s largest business federation, also wants to see the status quo preserved. “The engine of growth can only start up again if the country pursues economic policy that is clear and stable,” it said in a statement.
The most pressing challenge for the gridlocked National Assembly is the budget. Even before the election, France’s finances were in the spotlight after the budget deficit swelled to 5.5% of gross domestic product in 2023, prompting S&P Global Ratings to downgrade the country and the EU to instigate a procedure to enforce greater discipline on countries with excessive debt and deficits.
In France, there’s a tradition of opposition parties voting against a budget, no matter the circumstances. So when whatever government emerges presents its spending plans at the end of September, there’s the risk it will suffer a defeat and possibly collapse in a no-confidence vote. New bills and new governments could come and go, and a budget might not be adopted.
Fortunately for France, there are provisions in the constitution that would allow the state to continue collecting taxes and roll over spending approved the previous year. That autopilot setting may lend some comfort to business and investors as they navigate through a tense time.Read next: An Heiress Just Let 50 Strangers Pick How She Spent Her Millions. Will Others Try It?
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