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Jordan Bardella, the party chief of France’s Rassemblement National, warned on Monday that it would not hesitate to topple Prime Minister Michel Barnier’s government over his belt-tightening budget, hitting French stocks, bonds and the euro.
Negotiations between Barnier and the RN to find a compromise on the draft budget stalled ahead of a key vote in the National Assembly expected later on Monday, raising the risk that his minority government could fall as early as this week.
The budget’s fate and that of Barnier’s administration remain largely in the hands of Marine Le Pen’s far-right RN, the biggest single party and a key voting bloc in the National Assembly.
“The RN will trigger the mechanism to vote the censure unless there is a last-minute miracle and Barnier changes his draft law between now and 3pm,” Bardella told RTL radio on Monday.
“I don’t have much hope he will do so given how he has ignored and scorned us [and our proposals] in recent months.”
Investors have grown increasingly concerned that Barnier will fail to pass a €60bn fiscal package for 2025, including significant tax increases, aimed at reducing a deficit that stands at roughly 6 per cent of national output.
French stocks fell on Monday, underperforming other major European bourses, as the benchmark Cac 40 weakened 0.3 per cent. The euro dropped 0.5 per cent to $1.052, with Joe Tuckey, head of foreign exchange analysis at Argentex, saying that the impasse “continues to undermine confidence in [the] euro in general”.
French 10-year borrowing costs were flat on Monday at 2.89 per cent, as the country’s bonds missed out on a broader rally in Eurozone debt. The gap, or spread, above German bond yields — a key measure of the riskiness of French bonds — rose to 0.84 percentage points, having hit a 12-year high of 0.9 points last week.
“It seems hard to see how this plays out favourably for the market as either the [government] survives, which implies compromises which are only likely to result in wider deficits, or Barnier sticks to his guns thereby resulting in a spike in political uncertainty,” Rabobank analysts noted.
Pierre Moscovici, the head of France’s independent state auditor, warned that the country needed political stability if it was to fix its public finances.
“We need to give a sign that we are regaining control [over deficits] and it’s true that with a vote of no confidence we’re entering a phase of uncertainty,” he said on France 2 television on Monday. “Our financial situation is dangerous, worrying.”
Le Pen has insisted all the RN’s “red line” demands must be met if the government wants to avoid a no-confidence vote. On Sunday, budget minister Laurent Saint-Martin said no further changes would be made to the contested security spending bill, one of three that make up the budget, although a government spokesperson said on Monday that they were “still open” to further discussions with the RN.
Barnier last week abandoned a planned increase to electricity taxes, a measure fiercely opposed by the RN and other parties. But Le Pen has continued to push other “red line” demands such as scrapping plans to temporarily freeze pensions or lower reimbursements for medicines and doctors’ visits.
Without a majority in parliament, crafting a budget has proved tortuous for Barnier, forcing him to make concessions not only to the RN but also to his own MPs. Those tweaks have cut about €10bn of planned savings out of the social security budget and will probably put Barnier’s goal of bringing the deficit down to 5 per cent by the end of 2025 out of reach.
The leftist bloc, the Nouveau Front Populaire, has also pushed back against Barnier’s budget, and on Sunday confirmed that all four of the parties that make it up, including the more moderate Socialists, would vote for a censure motion.
If Barnier’s government was voted down this week, it would be only the second time French lawmakers have taken such a step since the Fifth Republic was established in 1958. It would also make Barnier the shortest-serving prime minister during the same period.
