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Michel Barnier’s government will face a no-confidence vote on Wednesday called by far-right and leftwing opposition parties that is highly likely to topple the three-month-old French administration.
Marine Le Pen’s Rassemblement National as well as the leftist Nouveau Front Populaire bloc filed the motions on Monday after the prime minister attempted to push through the first part of the controversial 2025 budget using a constitutional clause that allows him to override parliament if he can survive a no-confidence vote.
“Censoring this budget is, unfortunately, the only way the Constitution gives us to protect the French from a dangerous, unjust and punitive budget,” Le Pen wrote on X on Tuesday. She claimed the budget would “worsen the already monstrous deficits of seven years of Macronism”.
RN is the largest party in the lower house of parliament and Le Pen has brandished her power by threatening to topple the government if Barnier did not meet all of her party’s “red line” demands. The NFP has also said the four parties of its coalition would back the censure motion.
The RN has maintained its threat even though Barnier caved in to two of the far right’s key demands. The minority government does not have the numbers to withstand a vote of no confidence backed by both opposition blocs.
Finance minister Antoine Armand warned that a government collapse would trigger “financial and economic instability” for the country. French assets have underperformed in recent weeks as investors worry the political turmoil will derail government plans to rein in spending.
“It is not the government and the budget that are being censored, but the country that is being put in danger. If interest rates increase tomorrow, if taxes increase, the French will bear the consequences,” Armand told France 2 on Tuesday.
France’s borrowing costs briefly surpassed those of Greece last week in a symbolic moment for both economies. The euro was up 0.3 per cent against the dollar to $1.052 on Tuesday, recouping a little of its losses from the previous session.
French stocks were slightly higher, while the closely watched additional interest rate on France’s 10-year debt, compared with benchmark German Bunds, eased lower to 0.84 percentage points. It reached a 12-year high last week at 0.9 percentage points.
But analysts highlighted the challenges ahead. “The unfavourable political developments add to downside risks for the euro, alongside a potential trade war with the US,” said Lee Hardman, senior currency analyst at MUFG.
Analysts at Brown Brothers Harriman said the “political paralysis in France will make it hard to get the fiscal house in order”.
Barnier had set himself the goal of reducing France’s budget deficit from about 6 per cent of national output — far above EU limits of 3 per cent — to 5 per cent next year.
If the government falls, however, that goal will be all but out of reach. The most likely scenario from there would be the adoption of an emergency budget that would lead to a 6.3 per cent deficit in 2025, according to analysts at Morgan Stanley, as taxes increase in line with GDP growth but expenditure remains unchanged.
Under France’s constitution, President Emmanuel Macron cannot call another election until July 2025, one year after he called snap legislative elections he lost, resulting in a highly fragmented parliament. Should Barnier be forced out he will be the shortest-serving prime minister in France’s Fifth Republic, and Macron will need to appoint a new one who will once again attempt to form a government.
“We think a possible scenario to avoid a repetition of no confidence votes could be a technocratic government” that could attempt to pass a 2025 budget, the Morgan Stanley analysts wrote, though “the degree of reduction of the deficit seems hard to predict at this stage”.
Parliament illustration by Aditi Bhandari
