French Prime Minister Faces Budget Showdown, Risking Government Collapse
On Monday, French Prime Minister François Bayrou embarks on a critical test as he attempts to pass a new budget without a parliamentary vote using Article 49.3. This high-stakes maneuver could potentially topple France's third government in under a year.
Government Turmoil
After elections last summer, France has endured political uncertainty due to a fragmented National Assembly. The previous prime ministers, Gabriel Attal and Michel Barnier, failed to secure a majority, with Barnier's government collapsing in December after a failed budget vote.
Split Parliament
The National Assembly is divided into three main factions: a left-wing alliance, Macron's centrist group, and Marine Le Pen's far-right National Rally. The left-wing and far-right blocs combined have enough votes to pass a no-confidence motion.
Tightrope Walk
Bayrou and his minority government must court support to avoid a similar fate as Barnier. The Socialist Party has announced its support, while the National Rally remains undecided.
Budget Proposal
The proposed 2025 budget aims to reduce the deficit to 5.4% through savings of €50 billion. Investors closely watch the budget moves, concerned about political instability and rising deficits.
Market Reaction
French assets have faced challenges amid political turmoil. French government debt underperformed in 2024, while stocks underperformed the broader European market. News of the budget deal has led to a slight rally in French debt.
Political Power Play
Bayrou balances support from the Socialists with demands from the center-right and the far-right. He may consider courting Le Pen's abstention in the no-confidence vote, as Barnier unsuccessfully attempted.
Consequences
If Bayrou survives the no-confidence vote, he faces another similar challenge with the social security chapter of the budget later in February. If the government falls, Macron will appoint a new prime minister, who must propose a cabinet and negotiate a new budget. Until a full budget is passed, France will rely on emergency measures to avoid a shutdown.