French elections could bring new money to Geneva banks
Published: Friday, Jun 28th 2024, 13:20
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Following the defeat in the European elections, French President Emmanuel Macron is reappointing the National Assembly. The announcement resulted in a flight to the Swiss franc - and has already brought banks in Switzerland new money from the neighboring country to the west.
Elections will be held in France on June 30 and July 7. Investors fear that Macron could lose again and that France, which is already heavily indebted, could then become even less debt-conscious. According to political observers, there would still be no fiscal discipline in sight if both the far right and the far left were to win. And there is also the threat of new taxes.
Off to the safe haven of Switzerland
Many French people are apparently not waiting for the election and are already trying to place their money in Switzerland. "Our clients tell us: 'We don't care whether it's the left or the right, one or the other will have a negative impact'," said Martin Liebi, Managing Director of Oddo BHF Switzerland, to the news agency AWP.
What surprised him, however, was the speed with which the money had to be transferred. "Some want it to be completed by the end of the week, i.e. before the elections." For the head of the private bank, "there will certainly be more customer inquiries after the legislature".
Other Geneva banks do not want to comment on the inflow of money. However, the reintroduction of a wealth tax planned by some parties should "tempt some French clients to avoid this new tax", said Dusan Isakov, finance professor at the University of Fribourg, in an interview with AWP.
No financial leeway
France has not had a balanced budget since 1974 and has replaced Italy as the EU member state with the highest absolute national debt. Expressed in figures: the French budget deficit rose to 5.5% of economic output in 2023. France has now accumulated total debt of over 3,100 billion euros, which corresponds to almost 111% of GDP.
The Maastricht Treaty actually only allows the euro countries to achieve values of 3 percent or 60 percent. The country therefore has hardly any financial leeway.
The fiscal discipline of many EU member states has therefore been rather lax in the past. France is not alone in this respect, but it is the frontrunner. No wonder, then, that the Swiss franc has recently flexed its muscles against the euro following the announcement of the elections in France - despite the SNB's interest rate cut.
Poor prospects for the treasurer
There are three opposing blocs in the French elections: The Nouveau Front populaire (NFP) coalition on the left, Macron's "Ensemble" alliance in the center and Marine Le Pen's Rassemblement National (RN) on the right. All three have announced what they intend to do in the event of a victory at the Palais Bourbon in Paris.
The Institut Montaigne, a non-profit, non-partisan think tank based in Paris, has calculated the potential impact of the party programs on the budget. According to the think tank, the RN's plans, for example, would drive the budget deficit in France to over 9 percent of GDP in just a few years. And the additional expenditure of the NRP is estimated at 150 billion euros by 2027.
The Geneva-based financial group Mirabaud comes to similar conclusions: If the parties of the left and the extreme right are able to adopt their strategies, the French budget deficit would increase by around 1 percent of GDP each year.
Stalemate in sight?
Only Macron's government plan would "only" increase the deficit by 4 billion euros by 2027. However, John Plassard from Mirabaud puts the probability of an election victory for Macron and Co. at just 5 percent.
For the scenario in which the right achieves a relative majority, the probability is 30 percent, while Plassard gives the left a chance of 15 percent.
This means that a stalemate, in which none of the three political blocs receives a clear majority, remains the most likely scenario at 40%. Although this would not be a "positive" result, it would at least prevent a further deterioration in public finances for a year, according to Plassard.
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