French Prime Minister François Bailloux last week asked Parliament to hold him a vote of confidence that is expected earlier than expected. Next week’s vote could lead to the collapse of his centralist government and encourage a period of further instability in the European Union, the second largest economy.
The House of Representatives, a Monday vote in the Legislature, is seen not only because of Bailou trying to secure approval from himself and his government, but also because of the unpopular budget. However, the opposition voted against him, saying he would shorten his government’s time to take office.
Promising to remain until 2027, President Emmanuel Macron could face the complicated challenge of appointing the prime minister for the third time, a year after Congress rushed to dissolve in June 2024.
Financial markets were rattling after Bayrou’s announcement on August 26th. Interest on the 10-year bond rose to 3.5% on Monday, higher than Greece’s 3.36%, which was in debt.
What is Bayrou’s budget proposal?
At first, the French economy appears to be relatively good. The government’s debt mountain is lower than in Italy’s economy. And the cost of raising annual interest on that debt is far below the UK costs.
However, Paris is struggling to cover its spending. Last year, France’s fiscal deficit reached 5.8% of GDP (EUR 168.6 billion, or $160 billion). The official EU target is below 3%. Investors are worried that France’s permanent deficit will lead to an increasingly high debt ratio, which will undermine its credit score.
On his side, Bayrou is looking to lower government borrowing to 4.6% of GDP in 2026, and 2.8% by 2029. Next, in 2029 we will reduce our overall debt-to-GDP ratio to 117.2%.
His plans include savings of 43.8 billion euros ($51 billion) in 2026, 80% of which comes from spending cuts, including cutting public sector employment, halting pension index suspensions and discarding two public holidays.
The larger taxes on high-income earners are among other proposals considered.
The prime minister’s proposal comes in addition to raising the retirement age of Macron to 64 over two years in the unpopular 2023 in France. At the time, the president argued that excessive pension payments were a resistance to the country’s finances.
Before the vote of trust, the French leader once again tried to shape the debate about the country’s future.
“The problem, the problem is the fate of the Prime Minister, even the fate of the government. The problem is the fate of France,” Bailou said.
On August 26, Finance Minister Eric Lombard warned that unless France manages its debt, it is an intervention from the International Monetary Fund, a “risk right in front of its eyes” that is usually a global lender in emerging market countries.
How did political parties respond to Bailou’s gambling?
The conservative coalition of Bayrou’s centralists and alliances is not a complete majority in the French parliament, so the Prime Minister must resort to support, or at least abstain from enemies on the left and right.
However, the opposition, which holds more than 320 seats in the 577-seat Parliament, has already said they will vote against Bailou. If they stick to it, it is impossible for the current government to survive.
The legislator on the left of bowed said he “want to overthrow the government,” and socialists promised to reject “unfair budgets.” Marin Tonderia, the Greens national secretary, described Beiroo’s vote of trust as “a de facto resignation.”
Socialist leader Olivier Fehr said he would vote against the government. Bailou “choose to go,” Fare said.
Elsewhere, head of the national rally, Jordan Bardera said his far-right party would not “vote in favor of the government where the decision is plaguing France.” Bayrou effectively announced the “end of his government,” Bardella said.
How did the financial market respond?
Political instability increased the cost of government debt (also known as yields), and last week reduced the value of major French stocks with stocks in banks BNP Paribas, Credit Agricole and Société Generale.
For Davide Onglia, a European analyst at political research firm TS Lombard, the ongoing political struggle amplified the differences in French and Germany’s 10-year borrowing costs.
Since the beginning of this year, France’s borrowing premium to Germany (an important measure of macroeconomic risk) has expanded by almost 1 percentage point. France’s 10-year yields are currently one of the highest yields in the EU, and have recently surpassed Greece and Portugal.
“The political situation is causing a wider spread (between French borrowing costs and its European peers). We are not in a full-scale debt crisis yet, but the financial situation is becoming more urgent,” Wangria told Al Jazeera.
In December, Moody’s rating agency reduced France’s credit score from “AA3” to “AA3” amidst tensions on Paris’s finances. The Moody’s move coincides with people from rival agencies S&P and Fitch, which have downgraded France’s ratings since 2023.
What could happen next?
Most commentators said Bayrou will lose his trust vote next week and will likely force Macron to replace him with yet another prime minister. It would bring the president back to a deadlock on the budget.
Furthermore, there will not be any changes to parliamentary arithmetic. And political pilgrimage appears to follow, as Macron is unlikely to appoint a prime minister who advocates for a loose fiscal policy that could win Congressional support.
Some politicians, including National Assembly Marine Le Pen, urged Macron to call for a new legislative election in hopes of restructuring the political deck ahead of the 2027 French presidential election. However, the French president will be wary of that option.
The latest polls show that there has not been any significant change in the intentions of the vote since last year’s vote, resulting in the current Congress. Meanwhile, the prospect of victory for the national rally in the next presidential election is stronger than ever. The party has consistently led polls for its votes over the past two years. In May, two polls showed Jordan Bardera, a candidate for the national rally, was 30% and 31%, with the next candidate at 21%, respectively.
If the national presidential victory occurs, Wanglia believes the 2022 Italian election will provide a useful blueprint. “Meloni’s right-wing populist party quickly became financially centralist when they came to power,” he said.
“It would not be surprising to see similar results in France in 2027 (if the national assembly wins). Until then, we expect the political situation to assume a ‘long grass kick’ mode,” he said.
