France has entered a new stage of political and financial turbulence after Prime Minister François Bayrou and his centrist minority government lost a confidence vote in parliament.
On Monday, 364 lawmakers voted against the government and only 194 in favour, triggering the collapse of the administration.
The vote followed months of wrangling over the 2026 budget, with Bayrou unable to secure enough backing for plans designed to address a deficit standing at 5.8% of GDP in 2024.
His proposals sought €44 billion in cuts next year to bring the deficit down to 4.6% by 2026.
France to have its fifth prime minister in two years?
Bayrou’s resignation, due to be submitted to President Emmanuel Macron on Tuesday, means France is preparing for its fifth prime minister in less than two years.
Macron has several choices, none of them straightforward.
He could nominate another centrist ally, form a technocratic cabinet, or dissolve parliament and call a snap election. All carry risks.
A snap election could strengthen the far-right National Rally or far-left France Unbowed, both of which are calling for fresh polls.
A technocratic cabinet would likely face the same opposition to budget cuts.
Macron may again turn to a centrist figure who can unite fractured blocs, but forging consensus remains difficult in a divided National Assembly.
Markets steady but wary of fiscal consolidation
Despite the political upheaval, financial markets showed only a muted reaction.
On Tuesday morning, the CAC 40 index opened 0.25% higher, while yields on France’s 10-year benchmark bond rose slightly by 2 basis points to 3.4755%.
Analysts suggested the calm response reflected expectations that whoever takes over will still need to pursue fiscal consolidation.
According to Deutsche Bank, the next government will require support from both centre-left Socialists and the centre-right coalition to push through budgetary measures.
JPMorgan noted that Macron could attempt to build a grand coalition, though such arrangements are rare in French politics.
Budget battle intensifies ahead of Fitch review
At the core of the crisis lies France’s struggle to repair its public finances.
With the deficit at 5.8% of GDP and public debt climbing, Fitch Ratings is due to release an update on the country’s credit standing this week.
Fitch currently holds France at AA- with a negative outlook, and any downgrade could raise borrowing costs.
Unions are already planning nationwide protests on 10 September and 18 September against proposed austerity measures, adding pressure to any new government.
Political parties remain split on how to achieve deficit reduction.
While many agree that the fiscal situation is unsustainable, the divide is over methods: some favour welfare reform, while others favour tax increases.
Analysts warn that forthcoming governments will find it impossible to avoid fiscal tightening.
However, France lacks a strong tradition of grand coalition compromises, which complicates efforts to blend different approaches to reduce the deficit.
Structural divides complicate next steps
France has some experience with “cohabitation,” where the president and prime minister come from opposing parties.
Yet large-scale coalitions across left and right remain outside the country’s political culture, making compromise harder.
Without consensus, reforms may stall, prolonging uncertainty.
The immediate task for Macron will be finding a leader capable of negotiating across political divides while facing public resistance to cuts.
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