A French flag is seen at the Place de la République as people celebrate after the Nouveau Front Populaire, an alliance of left-wing parties including the far-right La France Insoumise party, took first place in Paris, France, July 7, 2024.
Remon Haazen | Getty Images News | Getty Images
The long-awaited appointment of Michel Barnier as prime minister by French President Emmanuel Macron last week marked the end of a period of political uncertainty in France following the inconclusive general elections in July.
For France, however, the challenges are far from over. The country faces acute budget problems and a continuing threat from the far-right Rassemblement National opposition led by Jordan Bardella and Marine Le Pen.
The first task of veteran conservative and former Brexit negotiator Barnier is to oversee the preparation of a draft budget for 2025 in record time, as it must be submitted to the French National Assembly for a vote in October.
The eurozone's second-largest economy must also submit a deficit-reduction plan to the European Commission within weeks if it wants to avoid disciplinary proceedings as its budget deficit, deemed “excessive” by the EU executive, continues to violate EU rules. France asked the Commission this week to extend its September 20 deadline to submit debt-reduction proposals.
Countries within the EU are required to limit their budget deficits to 3% of gross domestic product (GDP) and their public debt to 60% of GDP. France's budget deficit was 5.5% of GDP in 2023 and public debt was over 110%. This means that France will have to make drastic spending cuts and implement tax increases if it wants any chance of reducing its deficit.
This is a particularly big challenge for Barnier, a conservative from the right-wing Les Républicains party with little support in the divided French parliament.
Outgoing French Prime Minister Gabriel Attal and newly appointed Prime Minister Michel Barnier arrive for the handover ceremony at the Hotel Matignon in Paris, France on September 5, 2024.
Sarah Meyssonnier | Reuters
Barnier's appointment has already sparked mass protests in France. The New Popular Front, a left-wing alliance of four parties, is angry that its own candidate for prime minister was rejected by Macron – even though the alliance won the most votes in the July election.
At best, Barnier can probably count on the support of 47 MPs from his own centre-right party, Les Republicains, plus 166 from Macron's centrist alliance and up to 21 independents (making a total of 228 MPs at most).
However, it is very likely that he will face strong opposition from the NPF (with 193 seats) and that he may have to rely on the support of the Rassemblement National, which has 142 seats in parliament.
Analysts therefore believe that Barnier’s political survival depends “on the whims and personal-political calculations of Le Pen.”
“It can always add its 142 votes in the assembly to the 193 votes of the left. That would give it many more votes than the 289 needed to topple the Barnier government,” Mujtaba Rahman, managing director for Europe at Eurasia Group, said in a statement on Monday.
Meanwhile, the far right in France appears to be seizing the opportunity to become a kingmaker, able to influence the government by promising support or threatening to dissent.
Bardella, 28, leader of the Rassemblement National, described Barnier as a prime minister “under observation.” And the party, still under the auspices of Marine Le Pen, is widely expected to put pressure on Barnier's government to pursue policies consistent with its own anti-immigration agenda and commit to improving the living standards of French citizens.
Caught between a vengeful left that feels “cheated” of an electoral victory and the far right that knows it has a key role to play in whether the Barnier government survives or falls, analysts say France is likely to face continued instability in the near future.
Budgeting – the first challenge
The immediate challenge for Barnier's government is to pass a budget that will put France's public finances back in order. And that will not be an easy task, warn analysts and economists.
“Barnier faces a brutal first few weeks in office as he faces a deep budget crisis and the most fragile government in recent French history,” continued Rahman of the Eurasia Group.
“The great unknown … is the extent to which Le Pen will be prepared to tackle the most pressing crisis facing Barnier and the country: the painful choices necessary to prevent France from plunging into a devastating budget crisis by the end of this year,” he said.
He warned that Barnier's term could “end prematurely at any time” if Le Pen's far right joins forces with the left and supports a motion of no confidence. At the moment, it is more likely that Le Pen “will passively support Barnier's government as he pushes forward its priorities on migration, the cost of living and proportional representation. However, Le Pen's strategy will remain flexible and opportunistic and can change on a weekly basis.”
That means the methods Barnier's government uses to court the support of its opponents – and how the Rassemblement National will react to the government's draft budget and emergency spending cuts (which the Treasury puts at around 16 billion euros, or $17.6 billion) – will be closely watched.
Marine Le Pen and Jordan Bardella at the final rally before the European elections on 9 June, which took place on 2 June 2024 at Le Dôme de Paris – Palais des Sports.
Nurphoto | Nurphoto | Getty Images
Eurasia Group noted that Le Pen and the Rassemblement National probably want to avoid France plunging into a political and economic crisis and to appear as a “responsible” opposition in the eyes of voters (especially with a view to the presidential elections in 2027).
However, Barnier will be “at the mercy of the ultimately self-serving calculations of Le Pen and the extreme right,” the political risk consultancy said, giving him a 55 percent chance of succeeding and remaining in office until 2025.
However, Andrew Kenningham, chief European economist at Capital Economics, warned that Barnier would have difficulty getting the 2025 budget passed.
“We doubt that 'Mr Brexit' will be able to pass a budget that puts public finances back in order. To pass through parliament, the 2025 budget must be acceptable to Marine Le Pen's Rassemblement National, which until recently advocated major tax cuts and the reversal of Macron's 2023 pension reform,” he noted in his analysis.
“In addition, outgoing Economy Minister Bruno le Maire announced earlier this week that the budget deficit will be 5.6 percent this year. This is slightly higher than last year (5.5 percent) and significantly higher than the 5.1 percent previously expected,” he added. Both sales and corporate tax revenues are lower than expected this year.
“Overall, we suspect that French government bond spreads will remain above their pre-election levels and could even rise further,” Kenningham noted.
The yield on 10-year French government bonds is currently at 2.86%, after rising to around 3.3% at the height of political uncertainty in the summer. The spread (or yield difference, which reflects the risk premium investors demand for holding a riskier bond) between the yield on 10-year German and French bonds is currently at 71 basis points, after being above 81 basis points at the end of June.
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