France’s leftist surge defies the business-friendly, AI-hungry climate CEOs had grown accustomed to

Good morning from Geneva.

Global business leaders always knew this year was going to have some political surprises, as more voters than ever headed to the polls around the world. Yet even in this “super election year,” yesterday’s French parliamentary elections were an anomaly. They are a reminder, if anyone needed one, that politics is back as a strategic risk that business must reckon with.

The French weren’t supposed to vote until next year. President Emmanuel Macron caught everyone by surprise—business and political leaders alike—by calling the contest, a gamble after his party’s disappointing results in the European elections in May. Yesterday, an alliance called the New Popular Front, led by far-left candidate Jean-Luc Mélenchon, unexpectedly gained a plurality of seats, denying a clear victory for the far-right National Rally party, led by Marine Le Pen. Macron's centrist coalition came in second, and the National Rally in third, leaving France with a hung parliament.

So, what happens next for France?

Political gridlock is the most likely outcome. Macron’s 35-year-old Prime Minister Gabriel Attal already announced his government’s resignation, as its “Ensemble” coalition stumbled. Mélenchon’s bloc, meanwhile, may not take over immediately either, as it too fell short of a majority. (Presidential and parliamentary elections are separate so Macron will stay on as president but will likely “cohabit” with a prime minister from the left.)

If Mélenchon does manage to form a leftist minority cabinet, there is not much for business to look forward to. The policies put forth by Mélenchon will likely be costly for business: a lowering of the retirement age (Macron raised it from 62 to 64 in 2023) and extra spending on social welfare, environmental protection, and health care. The result is almost certainly more taxes in the country that already ranks first in the OECD in tax-to-GDP ratio.

It is hard for business to reconcile the reality of the two Frances that emerged in recent years.

On the one hand, there is the France of AI startups such as Mistral (whose valuation soared to $6 billion in the past six months), Kyutai (which last week showed off a voice assistant with human-like emotions), and “H” (previously known as “Holistic AI”). Together, they made France the European country with the most AI-startups.

In that reality, France is a shining city on a hill in Europe, with a GDP growth outlook that exceeds that of Germany and the U.K., and a blossoming appeal for post-Brexit talent.

On the other hand, there is the France of the extreme left and right; of Mélenchon and Le Pen. Both political forces want to do away with Macron’s international business-friendly policies, roll back labor market reforms, and generally favor workers and SMEs over an economy dominated by big business.

Which France will prevail?

The answer, it seems, depends on political realities that can change at any time. It is another reminder, then, that a CEO in 2024 does well to raise (geo)political scenario-planning to the top of their agenda.

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Peter Vanham
peter.vanham@fortune.com
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This story was originally featured on Fortune.com