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Business leaders fear rollback of reforms

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Coalition would be uncharted territory

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Instability seen putting off investment

By Leigh Thomas and Helen Reid

AIX-EN-PROVENCE, France, July 7 (Reuters) - France's

business elite is anxious about volatile politics, inexperienced

policymakers, street protests and a possible wave of

bankruptcies in the coming months, executives meeting in

Provence said ahead of Sunday's parliamentary election.

Corporate leaders gathered on Friday and Saturday in the

southern city of Aix-en-Provence for France's annual answer to

Davos have been among the main beneficiaries of President

Emmanuel Macron's pro-business reforms since he was first

elected in 2017.

Far right and left-wing parties want to roll back some of

Macron's reforms, ranging from raising the retirement age to

scrapping a wealth tax on financial assets.

Voters are set to derail his drive to ease taxes and other

constraints on business when -- as it is widely expected -- they

hand Macron's party a decisive defeat in an election that polls

suggest will give the far right the most seats in parliament.

"We are very concerned about what's going to happen," Ross

McInnes, chairman of aerospace company Safran, told Reuters.

"Whatever the political configuration that will come out of

Sunday's vote, we are probably at the end of a reform cycle that

started ten years ago."

While business leaders tip-toed around the topic of the

election in the public panels, they did not conceal their

anxiety on the sidelines over the rise of both the far-right and

the far-left.

The far-right National Rally (RN) will likely fall short of

an absolute majority, leaving other parties to figure out

whether a coalition can be formed to govern, which is

unprecedented in modern France and would likely be unstable.

"Nothing good ever comes from chaos. I don't know what's

going to happen, but this is a country that has seen social

unrest before," the head of a large French industrial group

said.

INEXPERIENCED LEADERS

Business leaders voiced concern that politicians standing at

the gates of power lacked experience steering the euro zone's

second largest economy while they also balked at the prospect

that France's already considerable tax burden could grow under

the left-wing alliance.

RN leader Jordan Bardella, 28, could become France's

youngest prime minister if the party wins a majority in Sunday's

election.

The political uncertainty has already driven up France's

cost of borrowing as bond investors demanded the highest risk

premiums over equivalent German debt in 12 years

after Macron called the snap election last month.

Meanwhile, corporate investors in the real economy are also

apprehensive about the political and economic outlook.

"We've continued to take investment decisions over the past

weeks, including in France. But clearly if we had had to make a

really major investment decision we probably would have waited

to have better visibility," said Mathias Burghardt, CEO of

Ardian France, a private equity firm.

With no sign the political volatility will subside anytime

soon, the higher financing costs could soon feed through to

French companies just as they are preparing to roll over

ultra-low-cost loans from the COVID era at higher rates,

executives said.

"That creates a scenario where we expect corporate defaults

to continue to rise in France beyond what could have been if

such a political disruption didn't happen," Ana Boata, head of

economic research at the trade credit insurance arm of

Allianz, told Reuters.

Macron's pro-business reform drive often jarred with voters,

sparking sometimes violent street protests like the yellow vest

movement of 2018 or marches last year against an overhaul of the

retirement system.

Though he won a second term in 2022, Macron has also failed

to connect with many voters, who see him as a product of the

closely intertwined political and business elites that run the

country.

The anti-immigration, eurosceptic RN has proposed to roll

back Macron's 2023 increase in the retirement age to 64 from 62

and cut taxes on energy, saying these measures would be paid for

by slashing welfare spending benefiting immigrants.

Meanwhile the left-wing Popular Front alliance's

tax-and-spend programme would bring back a wealth tax and raise

the minimum wage by 14% while also scrapping Macron's pensions

reform.

A minority government would be constrained by the risk of

votes of no confidence, likely making it less able to move ahead

with new legislation.

Beyond the possibility of a hamstrung government, business

leaders also worried about the knock-on impact RN's

anti-immigrant policies are likely to have on France's future

workforce.

"Demographics show us that we need to attract talent," said

McInnes. "This country has been sustained by immigration for 300

years."