Amid the growing prospect that Marine Le Pen or Jean-Luc Melenchon could win the presidency on platforms of raising trade barriers and potentially exiting the euro currency bloc, French companies are stealthily preparing for the worst.
In the case of a Melenchon win, the chief executive officer of one Paris-based industrial company, who asked not to be identified, said that the company would consider moving its headquarters to London, reports Bloomberg News. Managers are drawing up a Plan B should Le Pen win, said the CEO of another company, one of the biggest in the benchmark CAC-40 Index, without giving the details. Measures to make sure it can withstand a retreat by banks have been drawn up by Aramis Auto, a Paris-based car broker.
“We secured our credit lines with our banks a few weeks ago to continue financing the business,” said Guillaume Paoli, the CEO of Aramis, which sells 32,000 cars a year in France with a team of about 30 multilingual buyers purchasing vehicles across the European Union. “It’s difficult to do a checklist of measures to be taken” in the case of a Le Pen or Melenchon victory, he said.
A more plausible scenario than it’s ever been was made for a May 7 runoff between Le Pen of the far-right National Front and the Communist-backed Melenchon as the polls have tightened before Sunday’s first round of voting. Banks and insurers that are big owners of sovereign debt could be hurt as a victory for either one could lead to a plunge in the euro and in French government bonds.
The prospect of growing protectionism or higher taxes could weigh on businesses and stock prices, even though big French companies that sell internationally would benefit initially from the weaker currency.
Many are looking at ways to improve their cash positions by issuing more debt for longer terms, or increasing their hedges against currency swings, even though companies generally won’t talk publicly about preparations to avoid alienating customers and government officials.
“The economic philosophy of the two candidates is very similar; they’re anti-business,” said Jean-Francois Buet, chairman of FNAIM, an industry group for residential property brokers. “We don’t dare think of a duel between Marine Le Pen and Jean-Luc Melenchon in the second round because that would be a catastrophe in terms of the economy.”
With Le Pen and independent Emmanuel Macron running just ahead of Francois Fillon of the center-right Republicans and Melenchon,, the campaign has turned into a four-way race.
Macron or Fillon, would beat Le Pen in the second round as opinion surveys show that either of the more business-friendly candidates. But that has also been red flagged because as many as 40 percent of voters remain undecided.
Withdrawing France from the euro and erecting trade barriers is proposed by Le Pen. While, with conditions attached to staying in the euro, Melenchon wants to renegotiate European treaties to give France more economic control. Companies would find it harder to fire, limit executive pay and pull out of free-trade deals by this. He wants to re-nationalize utility companies and raise the minimum wage.
As markets priced in Melenchon’s rise in the polls and Le Pen’s persistent strength, the premium that France pays over Germany to borrow for 10 years has climbed this year. The euro has dropped about 5.6 percent against the dollar in the past year.
“We will start total resistance; this Le Pen-Melenchon second round can’t happen,” Pierre Gattaz, the head of Medef, France’s biggest business lobby, said on Europe 1 radio last week. Medef will spend the remaining days before the vote explaining the dangers of the Melenchon and Le Pen programs, the group said in emailed comments.
However, it may be that just a few entrepreneurs or French companies move elsewhere ultimately. An expected flood of exiles turned out to be a trickle after Socialist Francois Mitterrand won office and nationalized banks almost four decades ago.
“Some who would like to leave may, for instance, move their head office to the Netherlands, but it’s a major change and can’t be done in just a few weeks,” said Pierre de Lauzun, the head of the French Association of Financial Markets, which represents 140 broker dealers and securities firms. “A firm can’t rapidly change its real footprint, its plants, customers and providers.”
(Adapted from Bloomberg)