France is going through a historic political crisis. Adding to the chaos are the events of last Tuesday night which forced the resignation of Prime Minister Francois Bayrou after his centrist minority government lost an important confidence vote. That’s 364 lawmakers who voted against the government and just 194 in favor. This result captures the extent of the fissures in French legislative politics. President Emmanuel Macron is in a race against time. He has to choose a new prime minister or think about forming a technocratic government to address the prevailing chaos.
The stage for this political turmoil is set with France’s economic problems. The country has the luxury of an almost balanced current account. Its budget deficit is currently forecast at 5.8% of gross domestic product (GDP) for 2024, with a plan to bring this down to 4.6% by 2026. France is taking a radical step to get there. It currently aims to enforce strict austerity measures by cutting its budget by 44 billion euros, or $52 billion, in the next fiscal year. Though French financial markets were rattled, they proved resilient. On that Tuesday morning, the CAC 40 index opened up 0.25% right away.
As French legislators have tried to address these fiscal challenges, fears over the country’s credit rating have surfaced. Holger Schmieding, an economist, noted that “credit ratings downgrades for French bonds seem possible.” He remarked that the risk of a financial crisis remains slight, stating, “With its almost balanced current account, France is no obvious candidate for a financial crisis.”
Whoever his new prime minister is needs to be the catalyst for uniting the warring political camps. This decision is taken against the backdrop of unions’ calls for countrywide, anti-austerity demonstrations on Sept. 10 and Sept. 18. The president is expected to choose a centrist ally who can bridge the divide between political camps and address mounting pressures from both sides of the spectrum.
Political observers are quick to note the complicated picture. As Carsten Nickel noted, there is consensus on the apocalyptic nature of France’s public finances. When it gets to proposed solutions, there’s that same sharp divide. “While almost all parties agree on the dire state of France’s public finances, political camps are strongly divided over whether to address this problem through welfare reforms or tax hikes.” This division makes it tremendously difficult to negotiate the large bipartisan deals that will be required to address our nation’s fiscal realities.
The past few months have brought dramatic political turnover in France, with the country having had four prime ministers in under two years. A fifth is now expected as Macron tries to shore up his government. And on the street, the far-right National Rally and the far-left France Unbowed are calling for snap elections. That creates enormous pressure on Macron to figure out how to play off the centre-left Socialists against the support of his current centre-right coalition.
Raphael Brun-Aguerre, a political strategist, suggested that “a new lower house election cannot be ruled out,” but Macron will likely push for a grand coalition government to ensure stability. The imperative of cohesion is especially acute as France continues to contend with its own economic headwinds. Brun-Aguerre acknowledged that “it will be difficult for forthcoming governments to escape this topic.”