France’s political landscape is very turbulent. Now, the third such leader in the fiercely independent nation in just one year, Prime Minister François Bayrou is expected to demand one on September 8. This historic moment is looking for parliamentary approval for his ambitious fiscal policy to tackle the country’s most urgent economic needs. Continued political gridlock and opposition from policy makers on the left and right flank may soon overshadow his achievements.
Bayrou’s proposals are the most ambitious fiscal measures. His plan features a €44 billion budget savings plan focused on increasing public debt and reducing the budget deficit from 5.8% of GDP in 2024 to under 3% by 2029. The confidence vote is the linchpin to attracting broad legislative support for these reforms. These reforms are necessary to rescue France’s shaky economy as anger and radicalism surge.
France’s economy has proven remarkably resilient in certain sectors. The country’s future expansion hinges on the strength of its solid services sector. This sector had a historic run through the summer months, even with tariff related stressors that squeeze margins and disrupt supply chains. In addition, jobs in the services sector kept climbing in August, providing yet another boost to the economic picture. France’s current unemployment rate is nothing short of remarkable. This stability carries over to protect households through this challenging financial transition period.
Not all economic indicators are favorable. Consumer confidence in France has dropped again in August, with food inflation running at 3.2% on the year. These growing major costs are weighing heavily on consumer sentiment. This context is adding further difficulties for Bayrou’s coalition government as it seeks to push through its fiscal agenda. The yield spread between German and French bonds has been widening. This change marks a new phase of rising political tensions and mistrust in the government’s capacity to navigate the economic storm.
As in any major policy initiative, the opposition to Bayrou’s policies is fierce. For now, dissent is growing and united among leftist and rightist factions in the French National Assembly. This mounting resistance has called his capacity to advance the critical package required for fiscal reform into serious question. If he fails to garner sufficient support during the upcoming vote, Bayrou risks being ousted, further complicating an already difficult political environment.
The French TPE, or very small business birthplace of manufacture, cut out, almost instantly. As of the most recent data, however, it’s very close to growth territory. This increase is underpinned by a short-lived increase in demand from the U.S. So the increase in manufacturing activity comes as a great relief and blessing to the French economy. Continuing fiscal and political obstacles raise serious questions about whether this trend is sustainable.
Additionally, inflationary pressures are still front and center, especially in the services sector, where inflation rates remain high. Bayrou’s fiscal policy includes highly unpopular measures such as abolishing two public holidays and freezing welfare outlays and tax scale. These radical decisions have elicited enormous backlash and could cost Trudeau’s government their public support.