When Paris overtook London as the continent’s largest stock market two years ago, it was widely seen as a significant milestone in Britain’s relative decline. It was a sign of the City of London’s weakness – and it was evidence that the UK’s departure from the European Union was slowly destroying its once powerful financial markets. But hold on. This week, London has reclaimed top spot. French president Emmanuel Macron’s high-risk gamble on a general election has already backfired, at least financially, and he has now gifted financial leadership back to London.
Thanks to France’s president, the smart money is leaving Europe
On Monday, the total value of all the equities quoted on the London market hit $3.18 trillion (£2.5 trillion), compared with $3.13 trillion (£2.4 trillion) for all the companies listed in Paris, according to data from Bloomberg.
It is not hard to understand why. In part, Paris had always been pumped up by the extraordinary success of the luxury goods empire LVMH – Europe’s Apple – which soared to almost half a billion dollars in value. But president Macron’s decision to call a snap election at which his centrist Renaissance party is likely to be humiliated by the National Rally and the left-wing Popular Front, along with warnings about a ‘Liz Truss’ moment, has spooked investors. As a result, the CAC-40 – the benchmark French stock market index – has tumbled by 6 per cent in a week, even as other markets around the world were performing strongly.
Even worse, it has ignited fears of a fresh euro-zone crisis. Under Macron, France has already run up huge debts, with its borrowing rising to 112 per cent of GDP, and with the budget deficit stuck above 5 per cent of GDP annually even after years of ‘pro-business’ reforms. Now it is likely to elect a government committed to even more generous welfare spending. Major banks such as Citigroup are already downgrading European equities on political turmoil and advising investors to look elsewhere. The smart money is leaving Europe.
By contrast, the UK is about to elect a dull, technocratic Labour government that won’t do much for growth, but will at least be very stable.
For the first time since the EU referendum in 2016, Britain is starting to look like a safe place to park some money. Macron put a huge amount of effort into turning Paris into the key financial hub for the continent. It was starting to work, with banks shifting trading operations across to the Channel. But his risky election has thrown all that hard work away – and it has gifted financial leadership back to London.