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, weighing on French stocks, bonds and the euro.
Only hours before the crunch vote was expected in the National Assembly, Barnier gave in to another one of far-right leader Marine Le Pen’s “red lines” by abandoning a plan to lower the reimbursement of medicines that was supposed to save €900mn. It was his second concession after scrapping a planned increase to electricity taxes last week.
The budget’s fate and that of Barnier’s administration remain largely in the hands of Le Pen’s 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 morning before Barnier’s latest concession.
“I don’t have much hope he will do so given how he has ignored and scorned us [and our proposals] in recent months.”
Le Pen has insisted all the RN’s red line demands must be met if the government wants to avoid a no-confidence vote. The only remaining demand is a temporary freeze on inflation-adjusted increases to pensions. The measure was initially supposed to save €3.6bn.
Barnier’s allies have said the energy tax concession was made on request from all opposition parties, not just the RN. But this time the prime minister appeared to grudgingly concede the medicines point to Le Pen by citing her by name and saying she had made the ask during a phone call between them on Monday.
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 initially fell on Monday before stabilising by midday, but were underperforming other European bourses. The euro dropped 0.5 per cent to $1.052, with Joe Tuckey, head of foreign exchange analysis at Argentex, saying the impasse “continues to undermine confidence in [the] euro in general”.
French 10-year borrowing costs were down 0.02 percentage points to 2.87 per cent as the bonds regained some ground, though other Eurozone debt did better. The gap, or spread, above German bond yields — a key measure of the riskiness of French bonds — rose to 0.83 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.”
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.
