Controversial budget plans are causing political havoc across Europe | Wilnesh News

The French government is once again on the brink of collapse after Prime Minister Michel Barnier refused to give in to demands from parties on the right and left for further concessions on the country’s budget plans.

He now faces a no-confidence vote on Wednesday afternoon, which he is almost certain to lose.

Meanwhile, the German government is gearing up for snap elections early next year, with its own no-confidence vote set to take place in the coming weeks.

Even in the UK, Prime Minister Kier Starmer and Finance Minister Rachel Reeves are under pressure just five months into their job, with controversy centering around – you guessed it – Budget.

So why has the state budget suddenly become so controversial?

In the eurozone, post-pandemic fiscal rules are putting pressure on even the most hawkish EU members.

France, Italy and Greece have long been seen as budget rule breakers. However, now Germany, Austria and the Netherlands have also violated EU deficit rules, which require countries to maintain a deficit ratio of 3% and a debt ratio of 60% relative to GDP.

The European Commission, the EU’s executive arm, now judges budgets not just on their financial plans for the year ahead, but also on their impact on the long-term trajectory of countries’ deficits.

In Paris, Barnier tried to push for 60 billion euros ($63 billion) in tax increases and spending cuts by triggering Article 49.3 of the French constitution, which looks set to make him the shortest-serving French prime minister since 1958.

Political brinkmanship has sent French stocks lower while pushing borrowing costs to levels not seen since the euro zone debt crisis nearly a decade ago.

In Berlin, German Chancellor Olaf Scholz makes a surprise visit to Kyiv on Mondaypromising to reach an arms deal worth 650 million euros with Ukrainian President Zelensky. The move raised eyebrows in Germany because the government’s aid to Ukraine is at the heart of divisions within the alliance.

The government’s collapse could have long-term consequences for Germany’s fiscal rules, with opposition leader Friedrich Merz saying he would consider a review of once-sacred borrowing rules.

More budget-related damage has been suffered on both sides of the Channel, with business confidence falling to its lowest level since the Covid-19 pandemic and manufacturing slowing sharply since Reeves unveiled plans to increase taxes.

It appears that the consequences of what is considered a “bad budget” are taking a political toll that Europe needs to accept for the foreseeable future.

Edmund Shing, global chief investment officer at BNP Paribas Wealth Management, stressed that the post-election situation in the United States is changing as President-elect Donald Trump returns to the White House next month. clarity, while Europe is mired in stagnation and instability.

“The lack of political certainty at the heart of Europe comes at probably the worst possible time politically,” he told CNBC’s “Squawk Box Europe” earlier this week.