A French flag is seen at the Place de la Republique as people celebrate after the Nouveau Front Populaire, an alliance of left-wing parties including the far-left party, La France Insoumise, came in first place on July 7, 2024 in Paris, France.
French President Emmanuel Macron’s long-awaited appointment last week of Michel Barnier as prime minister marked the end of a period of political uncertainty in France following its inconclusive snap election in July.
France’s challenges are far from over, however, with the country facing acute fiscal challenges and a continuing threat posed by the far-right opposition National Rally Party, led by Jordan Bardella and Marine Le Pen.
Veteran Conservative and former Brexit negotiator Barnier’s first task is to oversee the formation of a draft budget for 2025 in record time, as it is due to be put to a vote in France’s National Assembly in October.
The euro zone’s second-largest economy must also submit a deficit-cutting plan to the European Commission within weeks if it is to avoid disciplinary proceedings, as its budget deficit, deemed “excessive” by the EU’s executive arm, continues to breach EU rules. France this week asked the Commission to extend its September 20 deadline for submitting debt-cutting proposals.
Countries within the EU are required to keep their budget deficits within 3% of gross domestic product (GDP) and their public debt within 60% of GDP. France’s budget deficit stood at 5.5% of GDP in 2023, and public debt exceeded 110%, meaning France must make deep spending cuts and introduce tax increases if it is to have any chance of reducing its deficit.
It’s a particularly tough challenge for Barnier, a conservative from the center-right Les Republicains party with little support in France’s fractious parliament.
Barnier’s appointment has already sparked mass protests in France with the Nouveau Front Populaire, a left-wing coalition of four parties, furious that its own candidate for prime minister was rejected by Macron, despite the alliance winning the largest share of votes in the July election.
At best, Barnier can probably count on the support of 47 MPs from his own centre-right party Les Republicains, as well as 166 from Macron’s centrist alliance and up to 21 independents (for a total of 228 MPs, at most).
But he is likely to face strong opposition from the NPF (with 193 seats) and could be at the mercy of the National Rally Party, with its 142 seats in the assembly, for support.
Analysts say Barnier’s political survival “depends on Le Pen’s whims and personal political calculations.”
“At any moment, he can add his 142 votes in the assembly to the 193 that the left has. That would produce many more votes than the 289 needed to topple Barnier’s government,” Mujtaba Rahman, managing director for Europe at Eurasia Group, said in a note on Monday.
For its part, France’s far right appears to be relishing the opportunity to become a kingmaker, able to influence government with the promise of support, or the threat of dissent.
Jordan Bardella, 28, president of the National Rally, described Barnier as a prime minister “under surveillance” and the party, which still operates under the aegis of leading figure Marine Le Pen, is widely expected to pressure Barnier’s government to pursue policies in line with its own anti-immigration agenda and pledge to improve living conditions for French citizens.
Caught between a vengeful left that feels “robbed” of an election victory, and the far right that knows it plays a key role in whether Barnier’s government survives or falls, analysts say France is likely to face continued instability in the short term.
Budget the first challenge
The immediate challenge facing Barnier’s government is to pass a budget that puts France’s public finances back on track, analysts and economists warn.
“Barnier faces a brutal first few weeks in office as he grapples with a deep fiscal crisis with the most fragile government in France’s recent history,” continued Eurasia Group’s Rahman.
“The big question … is how far Le Pen will be willing to go to tackle the most immediate crisis facing Barnier and the country: the painful elections needed to prevent France from sinking into a destructive fiscal crisis by the end of this year,” he said.
Warning that Barnier’s mandate “could be cut short at any time” if Le Pen’s far right joins the left in supporting a vote of no confidence, he said Le Pen was more likely, for now, to “passively support Barnier’s government if it advances its priorities on migration, the cost of living and proportional representation, but Le Pen’s strategy will remain fluid and opportunistic and could change on a weekly basis.”
This means that close attention will be paid to how Barnier’s government seeks support from its opponents, and to how the National Rally responds to the government’s unveiled budget and emergency spending cuts (anticipated by the finance ministry at around 16 billion euros, or $17.6 billion).
Eurasia Group noted that Le Pen and the National Rally likely want to prevent France from falling into a political and economic crisis by seeking to appear as the “responsible” opposition in the eyes of the electorate (especially as the party looks ahead to the 2027 presidential election).
However, Barnier “will be at the mercy of the ultimately selfish calculations of Le Pen and the far right,” the political risk consultancy said. It gave him a 55% chance of succeeding and staying in office until 2025.
Andrew Kenningham, chief European economist at Capital Economics, warned that Barnier would struggle to pass the 2025 budget.
“We doubt that ‘Mr Brexit’ will be able to pass a budget that puts public finances back in order. To get through parliament, the 2025 budget will have to be acceptable to Marine Le Pen’s National Rally, which until recently advocated deep tax cuts and the reversal of Macron’s pension reforms in 2023,” he said in his analysis.
“In addition, outgoing Finance Minister Bruno le Maire revealed earlier this week that the budget deficit will stand at 5.6% this year, slightly above last year (5.5%) and well above the 5.1% previously anticipated,” he added, with both sales tax and corporate tax revenues lower than anticipated this year.
“Overall, we suspect that French government bond spreads will remain above their pre-election levels and could even widen further,” Kenningham said.
French 10-year government bond yields currently stand at 2.86% after having risen to around 3.3% at the height of political uncertainty in the summer. The spread (or difference in yield, reflecting the risk premium that investors demand for holding a riskier bond) between German and French 10-year bond yields currently stands at 71 basis points, having narrowed from more than 81 basis points at the end of June.
