Political Crisis In France: Luxury Goods Resist On The Paris Stock Exchange

Today, political tension is at its height in France. From 4:00 pm (French time), the National Assembly will examine motions of censure tabled by the left-wing coalition, the Nouveau Front Populaire, and the far-right political party, the Rassemblement National (RN). These initiatives take place in a context of deep budgetary crisis and growing governmental instability. In recent weeks, the government has tried to defuse the situation by giving in to some of the RN's demands, in order to protect French Prime Minister Michel Barnier, but the spectre of a motion of censure remains.

While the Paris stock exchange has been on a negative trend for the past month and a half, a motion of censure and the possible collapse of the government would probably lead to a heavier fall in CAC40 stocks. However, the luxury goods sector is showing surprising resilience. On the Paris Bourse, Hermès is up 4.7%, the giant LVMH is up 3% and Dior is up 2.2%. The news is also positive for cosmetics group L'Oréal, up 1.5%, and for Kering (+1%). The market's relative stability is explained by encouraging news from China: the economic stimulus measures taken by the local government to support consumption and combat the real estate crisis are reassuring investors.

Faced with the threat of censure, the Barnier government did everything in its power to avoid censure, and increased the number of concessions, notably to the RN. One major decision was to cancel next year's proposal to de-reimburse medicines, which was intended to help reduce the colossal deficit of the Sécurité Sociale (editor's note: the French public health system). But this about-turn may prove insufficient, as the risk of censure looks increasingly likely.

Prime Minister Barnier, who had envisaged a rather strict budget plan, has had to scale back his ambitions, hamstrung by the blackmail strategy put in place by the RN, which has a dual objective: on the one hand, the RN wants to show public opinion the weakness of the Barnier government, and on the other, it wants to push the executive towards measures that may appear popular - such as maintaining reductions in corporate payroll taxes - while avoiding bearing the responsibility for any failure. Indeed, the blame would fall on the current government.

This pressure forced the Prime Minister to scale back his strict budget plan, compromising reforms designed to close the public deficit, estimated at 157.4 billion euros at the end of October. For example, maintaining payroll tax cuts represents a shortfall of 2.4 billion euros for the nation.

But today, the government's objective is to spare France from another political debacle, plunging into an even more serious crisis than the one generated by the surprise dissolution of the National Assembly, decided last June by President Emmanuel Macron.

What impact will these moves have on luxury goods? Is this just a temporary calm before the storm? Are the major groups already prepared for French political instability? Is this political crisis primarily aimed at foreign markets, thus avoiding French companies being hit hard by a domestic crisis? Could the RN's dangerous game have something to do with it? All these factors need to be taken into account.

Despite this positive trend for luxury goods, some major groups are still in the red. Stellantis, which markets, among others, the premium car brands Maserati and Jeep from the Italian-American holding company Fiat-Chrysler, fell by 6%. Although the reasons for this fall are more likely to be attributed to the sudden departure of CEO Carlos Tavares than to governmental difficulties.