The red carpet was rolled out for financiers with lavish dinners laid on at Versailles. Paris claimed to have the world’s biggest hub for “le start-ups”. And the French stock market overtook London to become the largest in Europe.
Over the course of his presidency, Emmanuel Macron has made unseating London as the key financial centre of Europe after Brexit a key objective. And, up to a point, he has had some success.
But Macron’s power is fading fast, and Marine Le Pen’s National Rally is likely to win the parliamentary election next month. Financiers are already getting worried about the political turmoil that is about to be unleashed – and that means there is an opportunity for the City to launch a lightning raid and win some of that business back.
President Macron does not have many achievements to show for his seven years in office. True, unemployment has come down a little and pensions are slightly less generous. But the budget deficit is above 5pc of GDP, France’s credit rating has suffered and growth is even lower than it is in the UK – and our record is nothing to be proud of.
And yet, he has made significant progress in boosting Paris as a finance hub. JP Morgan moved a trading centre to the city in 2021, with Macron on hand to open its new offices. Goldman Sachs went from 100 staff in the French capital to 500, and Citigroup and Bank of America expanded their offices, along with hedge funds such as Millennium Management and Point72.
A thriving start-up sector has emerged, especially in artificial intelligence, led by new companies such as Mistral, now worth $6bn (£4.8bn). And of course in 2022, to much fanfare, Paris emerged as a larger equity market than London. The French capital overtook Frankfurt as the City’s major EU rival, with all the jobs and tax revenue that flow from hosting a major finance centre. The president put in the effort and it was paying dividends.
Over the last couple of weeks, he has blown all that in spectacular fashion. In the snap general election called after humiliating European results, his Renaissance party is trailing in third place behind National Rally and the Left-wing Popular Front.
The Left promises a terrifying programme of wealth taxes along with huge rises in corporate and personal taxes that would kill off Paris as a financial sector. The Right is more vague, but will clamp down on visas, is hostile to finance, and would ramp up spending by tens of billions a year, while heading into a confrontation with Brussels that could well provoke 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 is now on the way out. He will either be a sorry figurehead in a Le Pen-dominated government, restricted to foreign policy or else trapped with political deadlock, and may well be hustled into an early retirement. It is hardly surprising if many of the banks are starting to wonder if Paris is such a good bet after all.
We can already see signs of that. French equities have been hammered, with bank stocks leading the massive losses, and earlier this week London overtook Paris again as the largest equity market in Europe. Even worse, France’s bond market is in turmoil, and the risk premium is rising.
Of course, it is up to the French to decide what path they want to take. And yet surely there is an opportunity here for the City. We should launch a lightning raid to win back some of the business lost.
True, the Labour government that will inevitably take power in Britain next month is not especially finance-friendly, and nor is it minded to cut any taxes. Even so, it has said it wants a strategy for growth and it will need to find some way of boosting its revenues. It would not be very hard to put together a package that would be attractive to some of the bankers now stuck in Le Pen’s Paris.
To start with, it could ring-fence banks and asset managers from its tough new employment laws, offering them an exemption from the regulations, just as Macron did in France. After all, most of the new rules are designed for low-paid warehouse and factory workers, not for Goldman Sachs bankers, and no one will have much sympathy if they are not allowed to ‘switch off’.
Next, it could ask the Bank of England to set up dual-language compliance and regulation, as the French did in the wake of our departure from the EU to tempt firms out of London.
We could offer some tax breaks, such as the 30pc income tax reduction offered to foreign workers in Paris or we could offer a reduced rate of capital gains tax for five years if any of those impressive French AI start-ups decide that London has just as much high-powered coding talent as Paris does. All it would take is a few minor tweaks to the tax and regulatory rules.
Over the last seven years, Macron openly tried to destroy the City and steal its business. The French government had no qualms about using Brexit as a lever to shift jobs and wealth to the other side of the channel. With France in turmoil, the British Government should try the same trick.
In reality, President Macron’s power is already fading. The City should bring some of that business home – and roll out the red carpet for any financier coming back to the UK.
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