France has been plunged into fresh political and fiscal uncertainty after Prime Minister François Bayrou lost a parliamentary confidence vote, forcing his resignation and deepening the country's budget crisis.
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A total of 364 MPs voted against the government, with only 194 in favour, highlighting divisions even within President Emmanuel Macron's centrist alliance, which holds 210 seats. Internal rifts within the conservative party Les Républicains further obstruct efforts to form a stable majority.
Macron said he had "taken note" of the government's fall and will "appoint a new prime minister in the coming days". He has ruled out dissolving parliament for now. Some MPs have proposed naming a "negotiator" to secure a policy agreement before selecting a prime minister, a process that could significantly delay budget approval. With nationwide protests scheduled for 10 and 18 September, Macron risks becoming the main target of public anger in the absence of a functioning government.
The crisis stems from Bayrou's proposed €44 billion in savings under the 2026 budget plan, which failed to secure consensus. According to the Finance Ministry, without corrective measures, public spending would rise by €51.1 billion in 2026, pushing the deficit to 6.1% of GDP – far above the 4.6% target submitted to the EU. Public debt is projected to climb from 113% of GDP in 2024 to 125.3% by 2029.
France's fiscal challenges are driven by demographic pressures. Social protection and healthcare accounted for 32.3% of GDP in 2023, compared with a eurozone average of 27.2%. Potential GDP growth remains subdued at around 1.2%, insufficient to meet rising costs, with growth this year forecast at just 0.6%.
Political instability is already weighing on sentiment. ING analysts warned: "The announcement of the confidence vote on 25 August has already increased uncertainty. While post-25 August sentiment data is not yet available, a drop in business and consumer confidence is likely. Investment, hiring, and consumption decisions may be postponed, slowing economic momentum."
Financial markets remain cautious. ING added: "French government bond (OAT) yields are unlikely to tighten from here, whilst the upside potential is still significant." While spillovers to the wider eurozone have been limited, prolonged instability could see pressure on rates.
Despite the turbulence, analysts note: "As long as Macron is president, likely until the 2027 elections, we don't expect a blow-out of OAT spreads and a broader shock to risk sentiment."
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ING
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