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France is currently experiencing a deep division, more so than in previous years. The recent killing of a teenage driver of North African descent by the police has sparked widespread unrest across the country, with violent protests highlighting anti-government sentiment stemming from various inequality issues.
President Emmanuel Macron has faced criticism for failing to fulfill his commitment to reduce racial and economic disparities. Meanwhile, just a few miles away from the impoverished Paris suburb where the shooting occurred, the French financial sector has been thriving. Macron’s goal was to make Paris a financial powerhouse comparable to London, and he has made significant progress towards that objective.
While Brexit has weakened London’s position as a financial hub, Macron, a former banker himself, saw an opportunity to capitalize on the UK’s departure from the EU and attract international businesses to the Parisian financial landscape. As a result, the five leading US investment banks have relocated at least 1,600 employees to Paris, according to calculations by the Financial Times. In fact, a recent EY study found that France has surpassed the UK in terms of the number of US financial services foreign direct investment projects directed at Europe.
Paris has become an attractive destination for traders seeking to establish themselves in the eurozone. The French government’s tax reforms, including the reduction of corporate tax rates and personal tax discounts for foreign executives and expats, have contributed to the influx of global talent. Additionally, Macron’s focus on competitiveness, exemplified by labor market reforms and controversial pension changes, has further bolstered France’s appeal as a financial center.
Another significant factor driving businesses towards Paris is political stability. Macron’s presidency is secured until 2027, and his finance minister, Bruno Le Maire, has held his position for six years. This contrasts with the uncertainty and frequent policy changes witnessed in the UK over the past year.
The European Central Bank has also played a role in incentivizing the relocation of staff involved in eurozone business. French officials suggest that the recent fine imposed on Goldman Sachs by the ECB for misstating risk capital will be used as leverage to compel banks to transfer more senior risk management executives to the region.
France is also actively attracting asset management firms, with prominent hedge funds expanding their operations in Paris. In particular, Citadel, Millennium, and Point72 have announced office expansions. Furthermore, if the UK’s Labour party comes into power and implements tax policies that impact the private equity industry, France may entice buyout executives based in London and the eurozone.
While Paris has made progress in attracting financial institutions, there have been setbacks, such as the decline in inward investment. The UK has reclaimed its position as the top destination for US financial services foreign direct investment in 2022, overshadowing France’s record performance in 2021. Additionally, France’s enthusiasm for cutting-edge finance has led it to riskier situations, as demonstrated by Binance, a controversial crypto exchange that faced legal action from the US Securities and Exchange Commission after choosing Paris as its European hub.
However, the expansion of the financial sector in France also poses societal risks. The influence of Anglo-American pay norms exacerbates inequality and deepens the divide between the wealthy and the less fortunate. This issue has long been a source of tension in the UK, and its impact in Macron’s increasingly polarized France remains uncertain.
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