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Markus Kuger

Terrorist Attacks Add to Woes of French Economy

by Markus Kuger | Dun & Bradstreet Editor

January 12, 2015 | No Comments »

Paris ProtestAround 1.6 million people took over the streets of Paris on Sunday to mourn the 17 victims of a three-day-long terror attack carried out by three men with links to Islamic terrorist groups. The rally was the largest Paris has seen since the city’s liberation from the Nazi occupation in August 1944.

The psychic toll of the terror attacks has been immediate and profound, but the economic impact of the terror attacks on France could be significant as well. (Only a few temporary delays were experienced during the attacks near Charles de Gaulle airport.) D&B economists predict the long-term repercussion on France’s country risk rating could be severe. Especially worrying is how domestic politics could impact the country’s business environment.

The anti-immigrant and anti-European Union Front National (FN) party will likely make further gains in the polls as a result of the terror attacks. While the FN had an openly racist and xenophobic image under founder Jean Marie Le Pen, his daughter Marine Le Pen (who succeeded her father as the party’s chairwoman in 2011) has tried to soften the FN’s image. Helped by corruption scandals of the UMP (the biggest conservative party) and the unpopularity of the governing Parti Socialiste (PS) of President François Hollande due to the country’s disappointing economic performance, Le Pen’s approach has been largely successful.

The FN won the elections to the European Parliament in France, winning 23 out of France’s 74 seats (with the UMP gaining 20 seats and the PS 13), in May 2014. Simultaneously, the FN won several town halls, especially in the south of France, where a significant share of the immigrant population lives.

The terror attacks will very likely increase support for the FN, especially as the party has been campaigning on an anti-Islam platform for a while. Although not D&B’s core scenario, a victory of Marine Le Pen in the presidential elections in 2017 cannot be ruled out completely. In most polls, she is winning the first round by a small margin but would lose the second round. If such an event occurs, tensions with the country’s sizable migrant population (most are from the country’s former colonies in the Maghreb and Africa) would rise further. At the same time, worries about France’s departure from the eurozone would increase as Le Pen openly advocates a French exit from the common currency union while simultaneously campaigning for increased economic protectionism.

Such a move would seriously undermine France’s business environment, which is already challenged. In the latest Global Competitiveness Report of the World Economic Forum, the country is ranked a poor 23rd (out of 144 countries surveyed), far behind peers like Germany (5th), the UK (9th), and even Belgium (18th). While the government has made some (insufficient) steps to cut red tape and to reduce taxes on labor in the past year, the recent events will likely distract the country from focusing on much-needed further economic reforms.

With regards to France’s risk rating, D&B is keeping the country at DB2d for the time being (the lower end of our “low” risk category). But D&B also is simultaneously changing the outlook from “stable” to “deteriorating.” In D&B’s view, customers should not be too afraid about the threat of future terror attacks. The French security forces are world-class and will increase efforts in the next years.

Much more worrying is the rise of the FN on the back of the current government’s inability to spur growth and reduce unemployment, which have already undermined prospects for doing business with France-based companies.


Photo by Kenan Šabanovic, used under a Creative Commons license.


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