06.05.2017
  • UK
  • France

Macron and May’s Battle for the Banks

Brexit has opened a fierce battle between London and Paris for the favor of the world's financial industry. Whoever wins, workers in both countries will lose.

London, England. Matt Buck

Almost immediately after former investment banker Emmanuel Macron was elected president of France, speculation mounted that he plans to take advantage of Brexit chaos and lure London’s bankers to Paris. If true, this gives some insight into the type of free-market structural transformation Macron has in mind for the French economy.

But enticing bankers away from Europe’s financial capital will not be easy. And successful or not, a battle for the banks spells bad news for workers on both sides of the English Channel.

Considering bankers are as unpopular in France as in most European states suffering the fallout of the 2008 financial crisis, this ruse is unlikely to garner support from already skeptical French workers. Nevertheless, Macron’s priorities lie in finding solutions to France’s three long-standing economic woes; high unemployment, low growth, and a large national debt.

Unsurprisingly, the policy prescriptions expected from Macron, such as relaxing employment regulations and reducing corporation taxes, come straight from the neoliberal playbook. However, Macron is much more akin to a Blair than a Thatcher, as he also intends to spend, committing €50 billion to invest in training, green energy, and infrastructure. Keeping in tune with Third Way centrism, nurturing a profitable financial services sector offers a convenient way to attract large amounts of capital to the French economy — the idea being that this influx of capital can then be used to fund social spending programs, reduce the national debt, and, most importantly, jumpstart economic growth to reduce unemployment.

While transforming Paris into a globally competitive financial player seems like an easy fix to France’s economic problems, pulling off this pilferage will not be easy. Macron’s plans to cut corporate taxes from 33 percent to 25 percent could prick up some ears, but it will take much more to entice financial services companies away from Europe’s finance capital.

To start, the UK has a more competitive corporation tax rate at 19 percent. But it is the governing institutions which make London such a big player in the finance world. The banking sector has always enjoyed a privileged role in British capitalism since funding the expansion of the empire, yet it was Margaret Thatcher’s regulatory transformation, known as “the Big Bang,” which saw the financial services sector become the cynosure of the British economy. These changes attracted huge global banks such as HSBC to London, and the City’s financial services sector has grown ever since.

Recognizing the structural importance of the finance sector to the British economy, successive governments have maintained full commitment to supporting the City in any way possible. Even after the 2008 financial crisis, the City was able to ride out the wave of anti-bank populism and maintain its influence over policy makers with successive Coalition and Conservative governments talking tough on reckless traders while simultaneously lobbying against EU regulations. All the while, government cronies turned a blind eye to relentless cases of fraud and tax evasion. This unwilting support for the financial services industry is unrivalled, even by US standards, and this is what makes London such an appealing place to do business.

However, one characteristic that creates a hostile business environment for investment bankers is uncertainty. And the ambiguity surround Brexit negotiations is providing this in abundance. Naturally,  Chancellor Phillip Hammond has assured industry leaders their interests will be paramount in ongoing negotiations, but the industry harbors many concerns.

First, traders risk losing their passport rights — the mechanism allowing traders to trade freely in other member states — as the European Union deems any access to the single market compulsory with freedom of movement.  Second, many of the City’s EU workers are anxious over their pending immigration status. A Conservative government will be keen to make allowances for high-earning individuals, but nevertheless, increasing xenophobia could push City workers to Europe’s mainland.

Another major concern for traders is the uncertainty over the stability of sterling. Many traders will hope that the fluctuations are cyclical and some speculators will even seek to profit from this volatility, but as the saying goes, even rats flee a sinking ship.

Of course, any plans for companies to vacate the City is contingent upon the upcoming election result, but neither option looks ideal for the finance sector. Theresa May’s recent disastrous meeting with the EU Commission suggests her leadership is not as strong and stable as she claims, and Jeremy Corbyn, a socialist intent on taxing the wealthy, will be most unwelcome. Either way, regardless of who is the prime minister on June 9, the uncertainty created by the lengthy Brexit negotiations will persist and financial services companies will start to seriously consider their options.

Europe’s leading banking cities will be ready to welcome any deserters, and Frankfurt, finance capital of Germany, looked to be front of the queue. However, bankers want to live and work a desirable city that caters for the wealthy; Frankfurt cannot compete with London for glamor the way Paris can. Moreover, with a dynamic young president with close ties to the finance industry who is promising tax cuts, companies will have to start taking Paris seriously.

Macron will also have domestic challenges to contend with if he is to pull off this heist. If Macron is able to push his policies through parliament — an outcome contingent upon his party’s success in next month’s legislative elections — he will face fierce resistance from French workers.

France had not previously endured the type of neoliberal transformations Macron is offering, as the country escaped the extreme neoliberalism suffered by its Anglo-American counterparts in favor of  “pragmatic neoliberalism,” which saw privatizations while maintaining commitment to high taxes and high social spending.

In actuality, this was because French policymakers lacked the political innovations of the Thatcher and Reagan administrations rather than worker resistance. Nevertheless, last year’s riots in response to Hollande’s attempts to lengthen the working week and recent actions by militant unions demonstrate resistance from French workers cannot be underestimated.

It is therefore to be expected that if Macron is successful in imposing this neoliberal transformation, he will have to adopt the same tactics as Thatcher — coercion through state violence. This could prove detrimental in attracting financial services companies as scenes of riots and police brutality could prove unpalatable for potential investors.

Accounting for all contingencies, the likely outcome is that some of the more mobile hedge fund companies may try their luck in Paris and the more globally competitive banks will relocate a portion of their operations (HSBC has already stated plans to move thousands of jobs to Paris), while banks more reliant upon the domestic market will stay put in London.

Either way, as both countries compete for investment, the ensuing race to the bottom will have detrimental effects for workers in both nations. Reductions in corporate taxes and top-rate income tax will increase inequality, thus widening social divisions, and attacks upon labor rights will put resisting workers on the back foot in the fight against capital.

If Macron is able to give finance capital a more prominent role in the French economy, he will open a Pandora’s box that is hard to close. Transformations in the political landscape in the United Kingdom and United States over the past thirty years has demonstrated that once finance becomes the major economic force in a domestic economy, the industry’s structural position and lobbying capacity endows finance capital with an insidious power over policymakers.

Once this happens, the parasitic nature of finance capital will demand more markets on which to speculate, leading to further privatizations, increased levels of private debt, and the development of a bubble economy — ultimately devouring its host.

On the other side of the coin, if Britain loses a significant portion of its finance sector there will be a deep recession. The current government has failed considerably to invest in training and infrastructure, creating an unproductive workforce, where a lack of an alternative plan will result in further tax cuts and attacks upon workers’ rights in a desperate attempt to attract investment.

If Macron is indeed intent on enticing finance capital to France, this would be indicate a complete embrace of his neoliberal philosophy and a lack of sustainable ideas to solve France’s economic problems. Third Way economic ideas have been thoroughly delegitimized over the past twenty years, and “Pasokification” across Europe suggests Marcon is flogging a dead horse.

The recent French election has shown France overwhelmingly rejected fascism, but five years of policies that favor banks to the detriment of workers provides hanging fruit for Le Pen to garner populist support. An emboldened National Front will be harder to defeat the next time around.