France Faces ‘Moment of Truth’ With Government on Brink of Collapse #FrenchFinance
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(Bloomberg) — Prime Minister Michel Barnier warned that France has reached its “moment of truth,” as far-right leader Marine Le Pen is set to join a left-wing coalition to topple his government as soon as this week.
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Le Pen’s National Rally as well as a leftist alliance filed motions on Monday to hold no-confidence votes against the government. Parties that support Barnier don’t have the numbers to counter a collective move from the two groups, meaning the administration could fall as early as Wednesday.
The National Rally became the largest single party in the lower house of parliament in a June snap election, transforming Le Pen into Paris’s most influential power broker. Even though Barnier submitted to nearly all of Le Pen’s demands to tweak France’s 2025 budget, she said her party still wouldn’t back the bill, paving the way for a government collapse.
“It is now up to you, as a parliamentarian of the nation, to decide whether to equip our country with responsible financial laws that are indispensable and useful,” Barnier told lawmakers Monday. “Or if we are entering uncharted territory.”
Barnier on Monday used a constitutional mechanism, called Article 49.3, that allows for legislation to be adopted without a vote, but opens the door to no-confidence motions. Support from the National Rally would have allowed him to adopt the bill while still being able to survive a no-confidence vote.
The French premier sought to appease Le Pen in the 11th hour, abandoning a proposal to reduce drug reimbursements after already caving to her demand last week not to raise taxes on electricity.
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The timing is particularly hazardous for France’s finances as the government must adopt a budget by year-end or use untested emergency legislation to avoid a shutdown.
But Barnier didn’t give in on the government plan to make significant savings by delaying the indexations of pensions to inflation. The National Rally submitted an amendment to crush the measure, but it was not integrated in time, according to a budget ministry official.
“Barnier did not wish to respond to the request of the 11 million National Rally voters,” Le Pen told reporters after the announcement. “He said that everyone should shoulder their responsibilities, so we will shoulder ours.”
The uncertainty around the budget has pushed bond investors to punish France’s sovereign debt relative to its peers, driving up borrowing costs at one point last week as high as Greece’s and leading Barnier to warn of a “storm” in financial markets if he is dismissed from power.
The spread between 10-year French and German notes widened by seven basis points on Monday to 88 basis points, near the highest level since 2012. The CAC 40 Index ended largely flat, while the euro fell 0.8%.
Investors have fretted for months over France’s political difficulties, just as the government has been trying to push measures that will reduce its unwieldy deficit. The budget bill initially presented by Barnier’s government contained €60 billion ($63 billion) of tax increases and spending cuts that aimed for a sharp adjustment in the deficit to 5% of economic output in 2025 from an estimated 6.1% this year.
French Finance Minister Antoine Armand said there would be painful consequences across the French economy if the government falls in the next few days. Relying on emergency legislation would tip 380,000 more households into paying income tax and another 18 million would see their bills rise, according to the minister. Emergency aid for farmers would also be impossible and the government could not go ahead with plans to hire more police.
“In an economy where interest rates rise, in an economy without a budget, in an economy plunged into uncertainty, no sector wins, no French person wins, no business wins,” Armand said on France 2 Tuesday.
Budget Minister Laurent Saint-Martin told Le Parisien newspaper over the weekend that requests to amend the budget would cost nearly €10 billion.
The National Rally has slammed broad swathes of the plans that it sees as potentially harming household incomes.
“There is no way out for a government that reconnects with the thread of Macronism, which refuses to take into account the social emergency at the end of the month and which ignores the need to relaunch growth,” National Rally President Jordan Bardella wrote on X after the announcement.
After opposition groups submit no-confidence motions, 48 hours must elapse before parliament begins to debate the proposal and a no-confidence ballot must take place within three days of that.
If the government is voted down, ministers remain in place with a caretaker status to manage current affairs, potentially including the emergency legislation to avoid a shutdown. It would then be up to President Emmanuel Macron to appoint a new prime minister, although there is no constitutional deadline for his decision.
While the left has called on Macron to resign, he can’t be forced out of his job. The next presidential election is set for 2027 and Le Pen remains the frontrunner, according to polls.
The president could also dissolve parliament again, but not until July, a year after the previous elections.
“I sincerely believe that the French would never forgive us for preferring private interests to the future of the nation,” Barnier said.
(Updates with finance minister comment in the 12th paragraph.)
