French minority government’s potential collapse puts economy in stalemate

ISTANBUL

The French minority government’s potential collapse fueled risks for investors, leading to massive sell-offs in the French stocks and bonds markets.

French premier Francois Bayrou called for a confidence vote on Monday to take place on Sept. 8, but the country’s three opposition parties are not on board with his budget cuts.

The surprise announcement led to the estimates that France could once again be left without a government, less than a year after the collapse of former Premier Michel Barnier’s government in December 2024.

Experts say that this could be a turning point in France’s political instability that began when President Emmanuel Macron dissolved the National Assembly in June 2024, which was due to his coalition’s defeat in the EU elections.

The CAC 40 declined 1.6% on Monday -- the day of Bayrou’s announcement -- and another 1.5% on Wednesday, while bank giants BNP Paribas and Societe Generale declined more than 6%.

The France 10-Year Bond rose to 3.53%, its highest since March, while hovering at 3.5% on Wednesday.

Far-right leader Marine Le Pen pushed for the dissolution of the National Assembly to replace the Bayrou government.

The eurozone’s second-largest economy with a public debt to gross domestic product (GDP) ratio of 113% also boasts one of the highest budget deficits at 5.8%.

The 2026 budget of France was at the center of this recent crisis. The plan presented on July 15 aims to reduce the public deficit from the projected 5.4% this year to 4.6% in 2026 and 2.8% in 2029, while estimating 43.8 billion euros ($50.7 billion) in savings, most of which will be from spending cuts, public sector hiring cuts, tensions and tax bracket indexation freezes, and the elimination of two public holidays.

While the French government is expected to fall, the economy is expected to face a stalemate. The French economy is estimated to grow only 0.8% this year.

- Bayrou highly likely to lose confidence vote

Salomon Fiedler, an economist from German financial services firm Berenberg, told Anadolu that Bayrou is at a high risk of losing the confidence vote on Sep. 8, as his government no longer has the majority in parliament and it requires support from either right or left-wing parties but politicians across the political spectrum are opposed to him.

Fiedler stated that even a simple majority against him instead of an absolute one would be enough to bring down the Bayrou government, as the real issue in France has been the fiscal policy, the efforts to bring the budget deficit under control, and while Bayrou did put forward a plan, it was deemed unacceptable by three different groups in parliament of equal size.

Fiedler emphasized that the ball will be in Macron’s court if the Bayrou government falls, while Macron’s most possible option against that is to call early parliamentary elections again, but if Macron asked Bayrou to remain, the temporary government would then have a limited ability to pursue its agenda.

He noted that Macron could appoint a new premier but the new government would have to rival against the same parliament and the financial problems.

Fiedler added that France’s financial situation remains unsustainable due to the government’s excessive spending, and Bayrou has been aware of the seriousness of the situation, as he put forward the budget plan, however, his measures, such as eliminating holidays, tax freezes, and social security and pension freezes, among others, are widely unpopular.