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The French Dispatch - Happy Holidays and Merry Dispatch!

Dear readers,

2022 is drawing to a close. It is time to take stock of the past twelve months. Welcome to the December edition of The French Dispatch, FGS Global Paris' monthly political and economic newsletter.

From the presidential and parliamentary elections to the dynamics of foreign direct investment in France and Germany, the Paris team has published 14 editions of The French Dispatch to provide you with the key to interpreting economic and political news in France.

Since its launch in November 2021, FGS Global Paris has seen its team triple with the arrival of new talents with international and diverse profiles. Through our in-depth knowledge of the most complex issues, we have explored and deciphered the world's geopolitical, economic and social situation over the past twelve months.

In 2023, the entire Paris office will be by your side, ever more committed to making sense of the latest political and economic developments. Until then, we would like to wish you and your loved ones most joyful holidays and a very happy new year.

Thank you all for your loyalty, your commitment, and your support.

The Paris Team

2022 Wrap Up

2022. Quite a year for France where, as a country, we were faced with multiple domestic challenges. France went through an electoral marathon, first with the presidential election, closely followed by parliamentary elections. President Emmanuel Macron was the first president to be elected twice in a row by universal suffrage without going through cohabitation. Despite this achievement, his reelection highlighted voter fatigue and an apathy towards the French political system. Abstention reached unprecedented levels, the highest in 50 years while the far-right score has reached its highest in modern history. The parliamentary elections that followed produced a hung Parliament, a situation which is rare in the French political system, where the President normally governs with a firm majority. As a result, the French government is now forced to reach across the political spectrum to find difficult compromises, either with moderate left or right opposition groups.

Faced with these challenges, President Macron appointed Elisabeth Borne as Prime Minister, more than 30 years after Edith Cresson, first woman to be appointed Prime minister in France. For the first time, the Prime Minister has been directly entrusted with wide-reaching ecological competencies – a testament to Macron’s ambition of building a stronger ecological profile and tangible legacy.

Emmanuel Macron’s second mandate, however, kicked-off with an unprecedented energy crisis, in the context of international tensions, leading to soaring prices and inflation. The country is also at a crossroad. Nearly half of France’s ageing nuclear fleet had to be temporarily shut down due to corrosion issues and planned maintenance every ten years which had been postponed due to the pandemic, dramatically reducing electrical output in the country. If the French government succeeded in filling its strategic gas reserves at their maximum level in September, the country is still faced with the prospect of some potential power cuts this winter, according to French grip operator RTE. The French government is currently warning authorities ahead of potential load shedding and briefing them on how to manage any possible outages. RTE has been tasked with alerting French citizens, in due time, of possible energy cuts.

France also witnessed major business and economic development as well as its stock market overtook that of London for the first time this November. Among the drivers of growth, France can be proud of its rising Tech scene and President Macron surely is: he made the promotion of French Tech a hallmark of his political identity, emphasizing that growth in the country’s tech sector is crucial to boosting the French economy. He recently declared he was hoping for a surge in the number of French Tech unicorns by 2030, with a target of at least 100 by 2030.

Over the past year, the French tech sector has notched up several high-profile fundraising rounds for some companies, such as the French online bank Qonto which raised €486 million.

Finally, another "soap opera" kept the French economic sphere hooked this year: the merger of the French TV operators TF1 and M6. Back in May 2021, the operators had unveiled their merger plans to form a European media powerhouse. After several plot twists, France’s top two commercial TV networks have decided to abandon their plans, due to the significant concerns raised by the country’s anti-trust board.

A look back at the French Presidency of the Council of the European Union

On the European scene, France held the rotating Presidency of the Council of the European Union for six months. Not an easy task, given the troubled international context and the country’s electoral marathon. Over the six months of its Presidency, France had to work toward establishing a united and firm response to the Russian aggression against Ukraine, while driving forward and shaping the EU legislative agenda for a more autonomous, green and values-driven Union.

What can we say about the French Presidency overall?

Looking back at the summit hosted in Versailles in March 2022, France succeeded one of its long-standing political priorities - bringing Europe’s defense strategy to the top of the political agenda. Most notable are the steps that were taken to strengthen the EU’s defense capabilities, to reduce its dependency on Russian imports and to build a stronger EU industrial base.

The French UE Presidency was also the opportune moment to make further strides towards:

  • A more sovereign Europe (by reforming the functioning of the Schengen area)

  • A greener Europe (by adopting the Climate Package to reduce its emissions by 55% by 2030)

  • A more digital Europe (by adopting both the “DSA” and “DMA” legislations, a groundbreaking new set of EU rules for a safer and more accountable online environment)

  • A more social Europe (by adopting the “CBAM” regulation, a climate measure aiming at preventing the risk of carbon leakage and support the EU’s increased ambition on climate mitigation)

2023: outlook

“The end of the abundance”.

The unavoidable reduction of public spending despite the profound disruption of the economy will likely lead to turmoil and widespread discontent.

During the Roman Empire, consuls proceeded to divination ceremonies (and sacrifices!) at the beginning of each year to fulfill the vows of the previous year and to pronounce new ones for the upcoming months. Although no such practice would be advisable today, recent years have been marked by dramatic events which seemed unthinkable in our era: the outbreak of the Covid-19 pandemic as well as by Russia's invasion of Ukraine, for instance. These events have demonstrated how difficult it is to anticipate the challenges that lie ahead, both for business leaders and decision makers.

In spite of this, one can already foresee some of the possible challenges and milestones ahead for the French economy as well as issues which are likely to influence the country’s political agenda.

‘The end of the season of abundance’. Since 2020, the French Government unleashed unprecedented public support to the economy to mitigate the profound disruption caused by both the pandemic and the war. However, with inflation soaring, the rise of interest rates and public debt reaching unprecedented levels, this path is becoming clearly unsustainable.

The flow of public money to business is likely to dwindle and this ‘season of abundance’ is coming to an end.

Getting the attention and the recognition of government officials will be more important than ever to secure the selective and targeted public support for business. Business plans will need to be adapted to reflect this new reality and to navigate a more complex environment.

Together with sky-rocketing energy prices, recession is threatening Europe and France. We can therefore anticipate a restructuring wave in the country, particularly in already weakened sectors or in energy-intensive ones.

While decision-makers are looking to 2023 with anxiety, opening dialogue and gaining trust will be increasingly important for any business leader seeking to operate in France.

The social climate promises to be ‘hot’ in 2023. Unions, consumer associations and NGOs will voice their concerns and protest early in 2023 and decision-makers will closely monitor their action and reactions. For any business active in France, the social issue will be an unavoidable one in 2023. And, to mitigate risk, communicating efficiently won’t be an option.

Facing these issues, we can expect to see reinforced activism from the side of the French government. To navigate through troubled weathers, the French administration will introduce flagship policy initiatives, internally and abroad.

Domestically, France’s catch-22 will rest on its ability to smoothly implement critical changes in its economic policy to foster growth but without sparkling unwanted social unrest and opposition.

This is against the backdrop of the delicate political balance promoted by a hung parliament. Reducing the fiscal burden for companies, reducing debt, and reviewing public expenditures will be pivotal moments.

On the more international front, the government will be eager to continue its global endeavor dedicated at ensuring a fair global level playing field. Pushing forward its long-standing pro- European positioning, the Macron administration will continue to voice concerns against the US inflation reduction plan, a policy regarded by many as protectionist despite seeking to challenge China’s subsidies policy. To this end, the Macron’s administration will be pushing for a more assertive European trade policy and support a general revamp of European state aid framework to allow increased support to domestic champions.

Whilst 2022 did not lack surprises, 2023 won’t be plain sailing either. France is navigating complex internal and external political environments. On the one hand, its relationship with Germany is under great strain (page 8). On the other hand, President Macron’s hung Parliament is an everyday uphill battle. Below, we take a look at both the external and internal possible sources of tensions going forward (page 10).

Franco-German trends in 2023: Three questions to Sylvain Fort, FGS Global Partner in Paris and former advisor to President Macron

1. How would you describe the state of Franco-German relations today? Is this a cyclical situation or a major trend?

Both France and Germany are entering a rough winter. Each of these two countries has been surprised by adverse circumstances that have forced them to rethink their model or to accelerate decisions in the areas of energy, defense and purchasing power. In addition to these domestic challenges, there is another difficulty: each government must act as quickly as possible in the interests of its own population. With this additional factor, there is often little space for communication, consultation and even cooperation between our two countries.

Domestic priorities can tolerate, during times of crisis, a certain degree of national egoism, which is devoid of any hint of hostility.

2. Is there a free rider in the Franco-German couple?

Unfortunately, the Franco-German couple is never without the mutual suspicion of the other not playing by the rules. For France, Olaf Scholz's solitary trip to China, when the French President had proposed that they travel together, was not well received. It is likely that in Germany, a trip by the German Chancellor to China with the French President would have been very badly regarded.

These misalignments will become more and more frequent in the coming months. The causes for mutual irritation are likely to multiply because crisis management does not always allow one to be attentive to the sensitivities of one's friends, even the best ones. Every communication consultant knows this.

3. Does Europe still depend on the Franco-German couple? On which future projects can the Franco-German couple rely?

The Franco-German friendship must persist. It is the pillar of our European future, at a time when the war in Ukraine will profoundly change the very face of Europe. There is no doubt that the Franco-German summit scheduled for January after having been cancelled in October, and the celebration of the 60th anniversary of the Elysée Treaty, will reassert this bond.

However, it will be necessary to take advantage of the current circumstances to go further, otherwise Europe will regress.

At the political level, in this period of crisis, an innovative and structuring project is needed to cement the friendship of these two countries, according to their common objectives and in the interests of European goals. One such example could be in the field of research, higher education, and technology.

At the level of civil society, mobilizing the vital forces to reweave the ties between the two peoples that have come to exist only at the highest political level is crucial. It is not desirable that indifference or ignorance continue to grow between two countries which, socially, economically, academically, culturally, and even in value-terms converge more than they differ. In these difficult political and economic times, it is not unreasonable to expect additional effort to be made to find political common ground. This is the only solution if we want to live up to the history of the Franco-German couple, and commit all of us not only as witnesses, but also as actors and as

If you are still catching your breath after the 2022 electoral cycle and its aftermath, do not expect 2023 to provide any relief.

The first few months could be misleading. Even though 2022 left a politically weakened Emmanuel Macron, his relative-majority government managed during the summer to pass key pieces of legislation to tackle the multi-faceted crisis experienced by France and Europe. This was possible thanks to the tailored and case-by-case compromises reached with other political forces, especially with the conservative party Les Républicains.

However, this tailwind may not last long, as demonstrated by the multiple use of the Article 49-3 procedure by the Government, which puts its responsibility at stake, to force the adoption of the finance bills for 2023.

In addition, a heavy agenda lies ahead for the President, with the country at a crossroad on many issues, the most notable being the energy transition. Two major bills are expected in 2023. The first bill aims at accelerating the installment of nuclear powerplants, and the second relates to the energy and climate programming for 2024-2029. Another key initiative to be introduced in early 2023 will be a bill for a new Military programming for 2024-2030. This, along with a revised National Strategic Review, is supposed to “adjust means with threats” and is likely to increase the efforts required of the economy and the population to fund this military program.

The most sensitive issue, the pension reform, is expected to be the first one to be presented. In an already heated context, this could shift the delicate political balance in France and prompt social and political unrest.

Meanwhile, every political party is starting to prepare for the next key electoral milestone: the 2027 presidential election. Many parties have already renewed - or are about to - their leadership and rebuilt their political platform. This is a typical exercise at the end of an election cycle. However, this time, it will be even more carefully monitored, as it will also give indications on political parties’ behavior for the rest of the current term.

In addition, given the fact that Emmanuel Macron cannot constitutionally run for a third mandate, ambitions among his own political allies are emerging. This poses the risk to further dissent within Macron’s own block and progressively undermine his political authority. Given this “lame duck” situation, a well- known concept in the US but which is a first in French politics, 2023 could yet be the last fully ‘usable’ year of Macron’s second term.

However, all this is to be read in conjunction with a simple fact. The next time the French voters will be called to ballots are the European elections in May 2024, unless the President decides in the meantime to pronounce the dissolution of the National Assembly, provoking very risky anticipated parliamentary elections, with uncertain outcomes.

Such a decision might be Macron’s own initiative, playing his favourite role as “master of the clocks”, should he consider his agenda to be blocked by the hung Parliament. He might also be forced into this position if MPs from Les Républicains decide to table a motion of no confidence, a motion that would gather the support of all opposing parties (from the left-wing coalition NUPES to the far-right Rassemblement National).

These rather cynical prospects do not hide however some more positive prospects for France. Indeed, France is looking forward to welcoming major sporting events in the coming years with the Rugby World Cup in 2023 before the 2024 Olympics, which is already expected to be a peak of Emmanuel Macron’s decade. Sport has always been crucial to the strong social fabric of France and has proven to be able to make hearts of the whole country pulse to the same beat. It could well be a precious source of ‘political oxygen’ for a President in need of a uniting force.

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