What impact will the elections in France have on fashion?

The recent early elections in France, called by President Emmanuel Macron, are creating considerable uncertainty in the financial markets. If the European elections already highlighted an unstable political landscape due to the rise of the sovereignist far-right, now the stock markets are dealing with the outcome of the early legislative elections in France, during which Marine Le Pen's Rassemblement National (RN) obtained over 30% of the votes in the European elections. About 50 million French people are called to the polls to renew the National Assembly, with the first round held on June 30 and the second round next Sunday. Currently, polls indicate that Le Pen's party and its allies, led by Eric Ciotti, are leading with about 36% of the voting intentions for the first round, followed by the left-wing bloc Nouveau Front Populaire at 28-29% and the presidential coalition Ensemble pour la République at 20%. Now, even though the French are not actually electing a new president, they are choosing the composition of the National Assembly, similar to the Chamber of Deputies in Italy, thus altering the parliamentary majority of the government - Macron will therefore remain and has said he wants to complete his mandate, but governing the country could become very difficult. This new electoral round could also have impacts on the luxury market, which is now at the center of a historical moment of general weakness.

The French political situation appears particularly delicate also due to the fragile public finances of the country. The French public debt (which according to AGI is among the highest in Europe) in relation to the national GDP was around 110.6% in 2023, with a per capita debt of 45,000 euros expected to rise to 50,000 within two years. The government ended last year with a deficit of 5.5% of GDP, prompting the European Union to initiate an infringement procedure. Moreover, 50.5% of the French public debt is held by foreign investors, making it more vulnerable to speculative instability. Rating agencies Fitch and Moody's have expressed concerns about the consequences of this political uncertainty, although the country's rating is not yet affected, and therefore the French situation remains unchanged but uncertain. Specifically, according to Fitch, uncertainty about France's fiscal consolidation path and the prospects for further economic reforms could have negative implications, while Moody's fears that a prolonged period of post-election political instability could have "a negative impact" on the operating environment of French banks and could lead to a downgrade of the outlook from stable to negative. A victory for the Rassemblement National could increase volatility, as Marine Le Pen intends to pursue a populist and fiscally expansive program. On the other hand, a possible victory for the left-wing coalition, the Nouveau Front Populaire, frightens the markets with a radical program that includes more progressive taxation, price controls on basic necessities, pension reform, a minimum wage increase, and the expansion of the public sector with the nationalization of major infrastructure.

But given that even a potential victory for Le Pen might not mean an absolute majority - and thus different types of party alliances might be necessary, the already thorny issue is compounded by the problem of ungovernability. This volatility is also leading to an increase in the spread between Oat and German Bunds and the decline of the stock prices of major Parisian banks, making economic players feel insecure. There's also the increase in public spending and deficit, expected regardless of the election outcome. Another source of concern is the relationship with Europe, which the sovereignists actually oppose. According to Il Sole 24Ore, foreign investors and major French industrial groups seem to prefer, as a lesser evil, a victory for Marine Le Pen's party over the radical left, fearing the political instability and economic uncertainty that could result. Certainly, the French fashion industry, so important for the country, would want to avoid those risks: just think that last year alone LVMH represented 4% of the country's exports, even surpassing wine exports. Another pending issue, more marginal relative to the general political landscape, is the law against fast fashion and the ban on used clothing exports to Africa - which, however, had already passed unanimously in the Chamber and therefore does not seem to be a political issue.

But as explained by Bloomberg, both parties have expressed the intention to make the rich pay more taxes - which could prompt the Arnaults and Pinaults as well as the remaining eleven billionaire dynasties in the country to maneuver their assets to reduce their taxes. A bit the opposite of what Macron did, who instead reduced them, as explained by Bloomberg, with the aim of stimulating both domestic and foreign investments by reducing wealth and inheritance taxes. Something similar happened in the '80s with Mitterrand and again during Hollande's biennium when many opened accounts abroad to avoid taxes. And if with Macron the role of the country's most important magnate, namely Bernard Arnault, was magnified, making the LVMH founder a public figure who also accompanied the president on several diplomatic trips, both the right and the left have announced future crackdowns on the mega-rich in the country. Regardless of how the legislative elections turn out, Macron will keep his seat for the next three years (the presidential elections in France will be held in 2027), but even with this semblance of continuity, the National Assembly he will oversee could be radically different after the elections, starting with the prime minister. Fashion, for sure, will be affected.