French Lawmakers to Vote on No-Confidence Motion, Economists Warn of High Economic Cost
French lawmakers will hold a no-confidence vote in Prime Minister Michel Barnier’s government on Wednesday, after two opposition parties filed motions of censure. If the government is ousted, Barnier will be forced to resign, and uncertainty will reign as President Emmanuel Macron names a new prime minister.
Economists warn that the political stalemate will come at a high economic cost, as the country’s fragile majority government struggles to pass a 2025 budget bill aimed at reducing the significant French deficit. If a new government is unable to pass a budget, French borrowing costs are expected to rise, and the economy could suffer.
French debt is already under scrutiny, with ratings agencies warning of potential downgrades. In the event of a no-confidence vote, a caretaker government could be established, which would likely present a special constitutional law to “roll over” the 2024 accounts without cutting spending or increasing taxes. This could lead to a growing fiscal deficit and make it more expensive to finance the government’s debt.
Analysts at Maybank warn that France’s debt is becoming more expensive to finance, and that ratings agencies are already issuing warnings. Professor Javier Díaz-Giménez of IESE Business School says that without a budget, France would effectively default, and that international investors are already dumping French bonds.
Economists also warn that the French government’s focus on tax hikes and public spending cuts is likely to slow economic growth, and that the current budget proposal is unlikely to address the country’s growing fiscal deficit. The economists at ING predict that the passing of a provisional budget mirroring the 2024 framework would only perpetuate the public deficit and debt growth.
While the situation in France appears dire, Professor Díaz-Giménez argues that the country’s prospects are more positive than Germany’s, which is also struggling with political uncertainty and economic growth challenges. However, the spread between France’s borrowing costs and Germany’s has stretched to a fresh 12-year high.