On July 7, 2024, in Paris, France, the New Front of the People (an alliance of left-wing parties including the far-left party “French Busumi”) won for the first time in Paris, France. People saw a French flag on the Place de la République.
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French President Emmanuel Macron appointed Michel Barnier as prime minister last week, marking the long-awaited end of an uncertain political period in France following July’s election.
However, France’s challenges are far from over, with the country facing serious financial challenges and the continuing threat posed by the far-right National Rally opposition led by Jordan Bardera and Marine Le Pen.
The top priority for veteran conservative and former Brexit negotiator Barnier is to oversee the formation of a draft 2025 budget in record time, as it must be voted on in France’s National Assembly in October.
The euro zone’s second-largest economy must also submit a deficit reduction plan to the European Commission within weeks if it wants to avoid disciplinary proceedings over its budget deficit Deemed ‘excessive’ by EU executivecontinues to violate EU rules. France makes request to European Commission this week Extension of September 20 deadline for submission of debt reduction proposals.
EU countries are obliged to control budget deficits within 3% of gross domestic product (GDP) and public debt within 60% of GDP. France’s budget deficit will account for 5.5% of GDP in 2023, and public debt will exceed 110%which means France will have to slash spending and raise taxes if it wants to have any chance of reducing its deficit.
It’s a particularly tough challenge for Barnier, a conservative from the right-leaning Republican Party who has minimal support in France’s parliament.
Outgoing French Prime Minister Gabriel Attal and new Prime Minister Michel Barnier arrived at the Hotel Matignon in Paris, France on September 5, 2024 to attend the handover ceremony.
Sarah Messonnier | Reuters
Barnier’s appointment has triggered mass protests in France by the four-party left-wing New Popular Front alliance, which is angry that its candidate for prime minister was rejected by Macron – despite the fact that the alliance won the election in July. won the largest share of the vote.
In the best-case scenario, Barnier could be supported by 47 delegates from his own center-right Republican party, as well as 166 delegates from Macron’s centrist coalition and up to 21 independents (at best, a total of 228 representatives).
But he is most likely to face strong opposition from the NPF, which has 193 seats, and is likely to be supported by the National Rally, which has 142 parliamentary seats.
Analysts said Barnier’s political survival therefore “depends on Le Pen’s whims and personal political calculations.”
Mujtaba Rahman, managing director of Europe at the Eurasia Group, said: “At any time, she can add her 142 parliamentary votes to the 193 votes the left has. This would be faster than overturning The 289 votes required by Barnier’s government are much higher.
Meanwhile, France’s far right appears to be relishing the opportunity to become advocates – able to influence the government by pledging support or threatening opposition.
Bardella, the 28-year-old president of the National Rally, described Barnier as a prime minister “under surveillance” while the party still operates with the support of nominal leader Marine Le Pen, who is widely expected to The party will pressure Barnier’s government to pursue policies consistent with its own anti-immigration agenda and pledge to improve living standards for French citizens.
Caught between a vindictive left that feels it was “deprived” of an electoral victory and the far-right that knows it plays a key role in the survival of Barnier’s government, analysts say France may face continued political uncertainty in the short term. Unstable.
Budget first challenge
Passing a budget that gets France’s public finances back on track is an immediate challenge for Barnier’s government, and analysts and economists warn it won’t be easy.
Eurasia Group’s Rahman continued: “Barnier will face a brutal test in his first weeks in office as he faces a severe fiscal crisis in France’s most fragile government in recent history.”
“The big unknown… is the extent to which Le Pen is willing to address the most pressing crisis facing Barnier and the country: the painful choices needed to prevent France from sliding into a devastating fiscal crisis by the end of the year,” he said.
He warned that Barnier’s term “could be shortened at any time” if Le Pen’s far right united with the left to support a censure motion, saying that currently, Le Pen was more likely to “passively support a Barnier government if But Le Pen’s strategy will remain fluid and opportunistic and could change every week. “
This means how Barnier’s government seeks support from its opponents, and how national rallies respond to the government’s draft budget and emergency spending cuts (The Treasury expects about 16 billion euros ($17.6 billion)) – will be closely watched.
Marine Le Pen and Jordan Bardella during the last rally before the June 9 European Parliament elections at the Dome-Palais de Sports in Paris on June 2, 2024 .
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The Eurasia Group noted that Le Pen and the national rally may want to avoid plunging France into a political and economic crisis and aim to become a “responsible” opposition in the eyes of voters (especially as the party looks ahead to the 2027 presidential election).
However, the political risk consultancy said Barnier would be “at the mercy of Le Pen and the far-right’s ultimately self-serving calculations”. This gives him a 55% chance of succeeding and remaining in the role until 2025.
However, Andrew Cunningham, chief European economist at Capital Economics, warned that Barnier would struggle to pass the 2025 budget.
“We doubt that ‘Mr Brexiteer’ will be able to pass a budget that gets public finances back on track. To pass parliament, the 2025 budget will need to be accepted by Marine Le Pen’s national rally, which until recently advocated huge tax Tax cuts and the reversal of Macron’s 2023 pension reform,” he noted in his analysis.
“In addition, outgoing Economy Minister Bruno Le Maire revealed earlier this week that this year’s budget deficit will reach 5.6%, slightly higher than last year (5.5%) and well above the previously expected 5.1%,” he added .
“All in all, we suspect French government bond spreads will remain above pre-election levels and may even rise further,” Cunningham noted.
French 10-year government bond yields currently stand at 2.86%, having surged to around 3.3% during the height of political uncertainty in the summer. The spread (or yield difference, which reflects the risk premium investors demand for holding riskier bonds) between German and French 10-year bond yields is now 71 basis points, down from 81 basis points at the end of June Narrow.
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