Finance has undergone profound evolution since its inception and especially in recent years: the development of environmental or social criteria, the advent of blockchain, etc. At the same time, behavior has evolved with the rise of ETFs, the rejuvenation of investors and the reduction of the holding period of securities. Radically conflicting visions collide in the current political context. Is finance really viable in France?
Politicians (again) took stand on finances!
French society is currently affected by deep differences, especially between supporters of a more or less liberal economy and those who defend a more unified and fairer model. Social movements, demonstrations against pension reform, and debates over tax justice clearly illustrate this tension.
From a more liberal perspective, some politicians advocate a market economy with little state intervention. “Liberal” politicians propose deregulatory measures and tax cuts to stimulate economic growth. As a result, apart from a few politicians, liberals are not represented in France. It’s more about “least interference”.
Politicians: what positions on finance?
Conversely, interventionists advocate wealth redistribution and increased regulation of financial markets to avoid “excesses” and “protect” citizens. For example, the New People’s Front proposes a “strengthened” tax on financial transactions. Similarly, Emmanuel Macron proposes the extension of the tax on financial transactions from France to Europe. We remind you that this tax only applies to investments in shares destined for France. Surprisingly, even a large part of politicians in LR favors expanding the tax base from financial transactions to intraday transactions. This example reflects quite well the direction of the debate on finance in France.
Strengthening this tax would certainly reduce the average holding period, the capital contribution to France and the flexibility of many investors. The vision of finance is therefore rather naturally defiant in France, especially when it comes to new assets. Thus, the New Popular Front sees cryptocurrencies as “speculative instruments that need to be heavily regulated.”
Debate on “solidarity financing”
Solidarity financing is a form of financing that aims to support projects with “social or environmental benefit”. The expansion of these considerations, especially through ESG, has led to the emergence of a large number of funds and criteria. However, this concept takes on particular significance in the current context in France, marked by growing political and social tensions.
In finance, sustainable funds generally show lower returns than other funds, but benefit from a better image. While it is clear that the development of “solidarity financing” affects the organization and strategy of enterprises, the political support is not so clear. In addition, it is still difficult for many medium-sized companies to meet the requirements of increasingly standardized financing.
Key characters
In 2022, the outstanding amount of solidarity savings reached 24.5 billion euros. Which means an increase of 20% compared to the previous year. This amount, although still marginal compared to total savings in France, shows the growing interest of savers in responsible and ethical investments.
Solidarity’s savings products, such as the Sustainable and Solidarity Development Booklet (LDDS) and shared funds, have made it possible to raise around €600 million in financing. In addition, the government has strengthened favorable tax measures, such as the income tax reduction for the subscription of the capital of solidarity companies (SOFICA) and the benefits associated with the SME-ETI share savings plan (PEA).
Limitations and challenges
Despite this progress, solidarity financing in France faces several obstacles. First, awareness of these products remains limited. A Finansol study shows that only 20% of French people are aware of the existence of solidarity financing. This lack of visibility prevents wider involvement of savers.
In addition, the profitability of solidarity financing products is often lower than that of traditional financial products, which may discourage some investors. Funded projects, even if meaningful, are often perceived as riskier. This limits the appeal to large institutional investors. Finally, the regulatory framework and transparency requirements are sometimes an obstacle for small structures.
Is the path to financial centralization inevitable?
For more than a century, we have observed a trend toward centralization of the banking system in the United States and Europe. Since 1990, the number of banks in France has increased from more than 1,800 to 769 in 2021 (-58%!). This phenomenon is mainly related to regulatory and normative inflation, but is also related to the presence of extraordinarily low rates after 2010. The concentration of the financial system around large national or global players benefits: increased power of a few standardized products, higher tariffs, increased systemic risks and the risk of political collusion .
However, the extreme centralization of finance was apparently disrupted by some innovations. The advent of blockchain in particular seems to be shaking up the way finance is practiced.
A community and decentralized vision: the benefit of cryptocurrencies
Bitcoin and other cryptocurrencies offer an alternative to traditional financial systems. Their decentralized nature enables greater transparency and reduced dependence on centralized financial institutions. This gap in regulation and practice between the old world and the new challenges the sustainability of traditional finance. Indeed, more and more managers, banks or funds, are favoring the development of blockchain as a support for long-term financial assets.
In general, blockchain makes it possible to develop finance in the following points:
- Transparency and traceability. Blockchain makes it possible to track every euro invested in a project. This ensures that the funds are used in accordance with the set objectives. Moreover, it builds trust between donors and investors.
- Reduction of transaction fees. By removing middlemen, blockchain generally reduces transaction fees. This allows more funds to be channeled directly to projects.
- Speed. Blockchain transactions are done in real time. This accelerates the financing of projects and the implementation of initiatives.
- Democratization. Blockchain facilitates access to financial services for the unbanked population by offering decentralized microcredit and payment solutions.
However, some point to Bitcoin’s high energy consumption. Despite everything, there are many economic blockchains that meet the needs of tomorrow’s finance.
Conclusion
Solidarity financing in France represents an innovative and necessary response to sustainable challenges. In France, financial regulation and supervision appears to be particularly successful. The tax on financial transactions reflects this relatively widespread concept of finance. At the same time, the increase in standards and regulations led to the development of solidarity financing. Public authorities have introduced incentive measures and favorable tax regimes.