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France is preparing for more political and economic upheaval, as Prime Minister Francois Bayrou and his minority government look highly likely to fall in a confidence vote later Monday.
Bayrou is unlikely to get the necessary votes to win the motion, which he called after struggling to persuade political opponents to back his 2026 budget that envisaged around 44 billion euros ($51.3 billion) in cuts.
The aim has been to bring France’s budget deficit down from 5.8% of gross domestic product (GDP) in 2024 to 4.6% in 2026 — a level that will still sit well above the European Union’s rules for its members.
If Bayrou and his minority government don’t win the vote, the government will collapse less than a year after Michel Barnier’s short-lived administration imploded last December.
That’s likely to rattle financial markets: France’s 30-year bond yield rose last week — alongside the borrowing costs of other major economies — before retreating. On Monday morning, the yield on France’s 30-year bond stood at 4.35% while the yield on the 10-year stood at 3.43%.
If Bayrou’s administration falls, French President Emmanuel Macron will have to then choose his fifth prime ministers in less than two years. Macron has been weathering the blame for France’s current crisis, following a snap parliamentary election that he called last year.
That vote was meant to provide more clarity over the balance of power in government but instead fostered more acrimony and division, with parties on both the left and right winning respective rounds of the election. Those feelings of anger have became more entrenched as Macron has put centrist allies in charge of ill-fated minority governments since the vote.
Rival parties on the left (the New Popular Front alliance) and right (the National Rally) have said they will not support Bayrou’s government after prolonged arguments over the budget and proposed spending cuts, tax rises and a suggested freeze on public spending. A proposal to cut two public holidays in France also went down badly.
Bayrou has positioned Monday’s confidence vote as an existential moment for France, telling BFMTV last week that the situation was “grave and urgent.”
Jean Claude Trichet, former governor of the Bank of France, told CNBC Monday that Paris was confronting “the combination of a difficult situation in terms of fiscal balance and a very difficult situation, politically.”
“I understand that the prime minister wanted to put all political parties in front of their responsibility in terms of asking them to recognize that there was a problem … Unfortunately, for political reasons, the extreme right and the left, including the Socialist Party, decided that it was not in their political interest to play the game of continuing with Bayrou,” he told CNBC’s “Squawk Box Europe,” adding:
“You can already consider that Bayrou is no [longer] the prime minister.”
The vote is set to take place Monday afternoon, with a result expected after 5 p.m. local time.
Arthur Delaporte, an MP for the Socialist Party, which had initially offered its support to Bayrou but has since reversed that position, said his party could not support a “blind” confidence vote and that the government had proposed too many budget cuts, too fast.
“[Bayrou proposed] too many cuts, too many cuts to public services, to pensions and on social benefits and it’s not acceptable. We today that there is social anger against the government and we think this is important to take into account, and Bayrou didn’t see it,” he told CNBC’s Charlotte Reid in Paris on Monday.
What happens next?
While economists and geopolitical analysts see Bayrou’s defeat as a given, “most interesting is what happens next,” Deutsche Bank strategists said in emailed comments Monday.
“President Macron is expected to nominate a new PM that could achieve a majority to pass the budget. This would probably require the backing of the centre-left Socialists as the right-wing populist National Rally has called for snap parliamentary elections to be held. There are also general strikes called in France for September 10 and September 18,” Deutsche Bank noted.
Macron is seen as likely to appoint a successor to Bayrou as quickly as possible.
“At the start of last week, France’s fiscal situation was a real pressing issue for markets, along with the U.K. gilt market selloff, but the U.S. bond rally has taken some of the sting out of this. Nevertheless, both countries remain in a precarious situation if global rates turn again,” Deutsche Bank added.
Pascal Cagni, president of C4 Industries, told CNBC that the political disarray in France would not be resolved comprehensively until there is a new presidential election, which is set to take place in early 2027.
“The truth of the matter is you’ve got three [political] blocks and none of them have [won] the elections … You will not resolve that until the presidential elections,” he told CNBC’s Steve Sedgwick at the Ambrosetti Forum on Friday.
“We have to learn how to work together … and to basically have agreements to quickly serve the country and reform,” Cagni said.