Marine Le Pen (left), chairman of the National Rally parliamentary group, and Jordan Bardera, chairman of the French far-right National Rally RN party and member of the European Parliament, at a parliamentary seminar of the French far-right National Rally RN party (Jordan Bardella) delivers a speech The French National Assembly meets in Paris on September 14, 2024.
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The far-right National Rally party has given the government a Monday deadline to agree new concessions on the 2025 budget or else France could be hit by a political earthquake in the coming days or face a no-confidence vote it says it will support.
The National Rally (RN), led by Marine Le Pen and Jordan Bardera, has so far failed to negotiate with Prime Minister Michel Barnier over next year’s budget involving 60 billion euros ($63 billion) in taxes. able to meet most of its budget demands by raising interest rates and cutting spending.
RN said that if there was no breakthrough on Monday, it would most likely support a vote of no confidence that the left-wing New Popular Front (NFP) coalition said it had drafted, against the minority government that Barnier has only led since September.
Left-wing blocs say they plan to shelve a no-confidence motion if Barnier’s government uses special constitutional powers to force through a budget bill, a move that would allow him to overwhelm opposition from both the left and right in France’s National Assembly.
On Sunday, Le Pen said the government had effectively “ended discussions on the budget,” according to French news agency AFP. The government is threatening new concessions.
RN said the budget had reduced the purchasing power of the French people and wanted concessions on tax increases, which he said would affect households and businesses. Among its demands, the party called on Barnier to increase pensions in line with January inflation, step up support for small businesses and abandon plans to reduce drug payments. The Prime Minister has abandoned plans to increase electricity taxes.
On Monday, RN president Bardera reiterated in comments on RTL radio translated by Reuters that the party would likely support a motion of no confidence in the government in the coming days, barring a “last-minute miracle”.
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If France’s political unrest reaches its peak and Barnier’s government is overthrown, it’s uncertain what will happen next. New parliamentary elections will not be held until next June, 12 months after French President Emmanuel Macron’s last early vote, which was aimed at achieving more political stability but was misjudged , but the results were much less.
Money markets are already nervous about the unraveling of France’s political establishment and what it means for the euro zone’s second-largest economy’s need to address its growing debt and budget deficit. It is expected to reach 6.1% in 2024. In 2023, France’s public debt will exceed 110% of GDP.
EU countries are obliged to control budget deficits within 3% of gross domestic product and public debt within 60% of GDP. Even before these EU rules came into effect, France had been unable to rein in its public spending, Since 1974, no government has balanced its budget.
France’s brewing crisis spilled over into financial markets last week, with the country’s borrowing costs reaching the same level as debt-ridden Greece for the first time on record on Thursday.
French Prime Minister Michel Barnier (center) delivers an overall policy statement to the French National Assembly on October 1, 2024 in Paris. A sudden election was held this summer to bring some stability, resulting in a hung parliament causing political chaos.
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Economists at Berenberg Bank led by Holger Schmieding said in an analysis on Monday that France was on the “wrong track” overall, warning that “France There is an urgent need to correct its unsustainable fiscal policy,” while noting that Barnier’s government is now “at the mercy of the national rally.
Still, they noted in emailed comments that Le Pen must play an elaborate political game in the coming days.
They said: “Le Pen may want to portray herself as a guardian of ordinary people by opposing some of Barnier’s tax increases and spending cuts. But doing so is also risky for her.”
“If she now triggers a financial crisis, causing bond yields to spike and perhaps even triggering a recession in France, she may be seen as an agent of chaos rather than a responsible leader.” This in turn, they note. could hurt her chances of winning the presidency in 2027.
“This calculation suggests that Le Pen may still try to reach a compromise with Barnier to save France from a political and financial crisis this Christmas,” they noted.
Trouble, what happened?
Economists note that even if the 2025 budget is passed by some “last-minute miracle” (to borrow Bardera’s words), it will be a brief reprieve from France’s broader fiscal challenges.
“If the new, still minority government reaches an agreement with the national assembly and passes the 2025 budget, it will bring some relief to the market… However, this will not solve France’s huge budget deficit and government debt problems, which The problem will take years of hard work to resolve.
“With the end of ultra-low interest rates, the ECB expects France’s debt servicing costs to rise above 4% in 2034, leading to a major and prolonged debt crisis. However, at the next meeting in July 2025 parliamentary elections and perhaps the presidential election in 2027, the email comments said.
People walk along the Chatelet Hall area in Paris during storm snowfall in Caetano.
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Gallagher said that if the budget fails to pass, volatility in European financial markets will intensify.
He warned that the spread between French and German bonds could quickly widen to 150 basis points from the current level of about 80 basis points, and the European Central Bank may be forced to take action in some form to calm the market.
Berenberg Bank agreed that if unrest in France seriously affects the euro zone’s economic growth prospects, the European Central Bank may have to adjust its overall monetary stance by cutting interest rates more than originally planned.
“However, we think it is unlikely that the ECB will step in directly to support France’s bond purchases… The ECB is not obliged to subject France to the potential consequences of failing to pass a budget. France must act,” said Berenberg’s economists. is the result of the centre-left and/or Le Pen reconsidering their opposition to necessary fiscal consolidation.
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