France's hopes of becoming a major financial hub for banks seeking to relocate after the U.K.'s decision to leave the EU could be dashed as the country's unpredictable presidential race has led to concerns about its political landscape.
Business-friendly François Fillon of the center-right Les Républicains was the favorite to win the election until late January, when allegations surfaced that he had paid family members generous salaries as parliamentary assistants for work they may not have done. He had been widely expected to make the second round and soundly beat his closest rival, far-right leader Marine Le Pen of the Front National.
In the wake of the scandal, the latter took the lead in the polls for the first round, scheduled for April 23, closely followed by centrist candidate and former banker Emmanuel Macron with his newly created political movement En Marche!
Macron — who was economy minister under current President François Hollande but has never been elected into office — is expected to win the May 7 run-off with Le Pen if, as anticipated, no clear winner emerges from the first round. But the uncertainty over the election result is making people think twice about Paris as a potential location post-Brexit, experts in the financial sector told S&P Global Market Intelligence.
Paris, like other European financial centers, has been trying to woo financial services businesses looking for an EU hub in the wake of the U.K.'s decision to leave the bloc, but France's image as highly taxed and anti-business is exacerbated by an unclear political situation.
"Generally, people are feeling that Paris is an uncertain place," said Mark Yeandle, associate director at the research firm Z/Yen Group.
"When Brexit came, there was a lot of uncertainty, there was a lot of uncertainty during the elections in the U.S., and there is uncertainty with the French elections now, especially when you have a fairly stark choice of candidates. Both of them have completely different policies, and it is not just a case of there not being much to choose between them."
Le Pen is in favor of a referendum on France's EU membership and wants to take France out of the euro, while Macron wants to develop a new growth model for the country, which includes corporate-tax cuts, reductions in public spending and a €50 billion economic stimulus plan.
The mere fact that a candidate in favor of "Frexit" will most likely make it through to the final sprint makes companies nervous about moving operations to Paris, other experts said.
"The answer is quite simple: Companies are going to hold off on any decision until the elections are over," said Markus Ohlig, managing director at Greenwich Associates, a consultancy that advises asset managers and corporate bankers.
A Le Pen victory would see bankers going to cities such as Luxembourg, Dublin or even New York instead of Paris, he added.
Parliamentary election concerns
However, election uncertainty in France will not be over until June, when the country will again go to the polls, this time in parliamentary elections. Macron, having created his movement last year, has no members of parliament, while the FN has just two out of a total of 577 in France's National Assembly.
"The likely outcome of a Macron win points to a business-friendly agenda, but he doesn't have a party in parliament and he — and le Pen for that matter — would face obstacles in getting laws passed," Ohlig said.
Another concern for banks thinking about moving operations to France is that even if Le Pen does not win this time around, she has been gaining in the polls in each presidential election, he added.
"Five years [until the next presidential election] is not huge — there will be some concerns about what is going to happen overall," he said. "If the country doesn't move, it will increase the chance of the FN winning the election in five years."
But Arnaud de Bresson, managing director of Europlace, a financial industry lobby group that is pushing to make Paris more attractive, said the two-round French electoral system "limits the risks" and means that "we remain very confident that we will have a business-friendly president."
"Several dozen" financial institutions have already made contact with French regulators to set out their plans to come to Paris, making it likely that financial services companies will move to the city post-Brexit, he added.
But given the unpredictability of the race so far — with far-left leader Jean-Luc Mélenchon seen as the most convincing candidate in a televised debate on April 4 — observers remain cautious about its outcome.
"I think that Mélenchon is worse for the banks because he has a hard-left core agenda," said Sam Theodore, head of the bank rating team at Scope Ratings, adding that the election outcome would be key to Paris's position as a financial center.
"An extremist gaining power would make doing business more difficult," he said.