France: a bad tale of lost time

On August 25, François Bayrou, the Prime Minister of France, informed his fellow citizens that on September 8, he put the question of confidence in his cabinet before the National Assembly. He explained this decision by the fact that without the support of his government it is impossible to implement his proposed package of measures to improve the budget and combat the growing national debt of the Fifth Republic. Denial of confidence will cause a political crisis: from urgent elections to blocking the work of the executive branch. The direct consequence of the negative development of events will be the status of France as the new "sick man of Europe", which is not threatened by the crisis in the economy, but it loses the confidence of investors and rating agencies until the presidential elections in 2027.

Prime Minister Bayrou alerted the market and political analysts with a single decision to hold a vote of confidence. In France's recent history (since 1958), the legislature has only twice expressed no confidence in the cabinet. The last time was in December 2024 with Prime Minister Michel Barnier. After him, the Cabinet was headed by Bayrou, who is considered the most compromising (ready to work in any coalition) politician in France.

The Bayrou government itself is considered the child of a complicated political deal in the republic. As a result of urgent parliamentary elections in the summer of 2024, the heir to the National Front - the National Rally movement and its allies won 143 out of 557 seats in the national assembly, while a coalition of left-wing parties took 182 seats. Instead of a strong majority in parliament, President Macron has only 168 political associates, strong left and right blocs and the need to "make friends" with part of the right-wing Xi to form a cabinet.

Not even a year after the political compromise, and already the second head of the Cabinet is ready to risk it: Bayrou calls for a vote of confidence, urging to "open his eyes" and see the problems before the 2026 budget debate. There is a need to wake up to the dynamics of rising public debt. A multi-year "stop debt" plan is designed to fight the debt growth: successive reductions in the budget deficit from 5.4% (2025) → 4.6% (2026) → 4.1% (2027) → 3.4% (2028) → 2.8% (2029). In terms of money, the estimate of the various measures for 2026 is a saving of €43.8 billion in public finances.

Denial of confidence to the Bayrou government not only calls into question the "stop debt" plan, but also gives a chance for several scenarios to materialize at once, all of them negative. President Macron can form a technical government and launch negotiations for a new prime minister (all the while the budget may not be considered) or dissolve the National Assembly (getting an even more right-wing opposition parliament) and form a government after the election of deputies. Or resign, at which point France will go through a head of state election.

The peculiarity of the current moment for President Macron and Bayrou is that at the beginning of 2025, the master of the Elysee Palace personally spoke in favor of working with any parliament and not re-electing it at every opportunity. He also spoke of his intention to work until the end of his mandate without early dismissals. Thus, if the deputies express distrust of Bayr, France will find itself in a managerial deadlock at a time when it has to make difficult decisions in terms of the budget and the national debt. And in this deadlock it may remain until the election of a new head of state in 2027.

Speaking on September 8, PM Bairu may give MPs the following data.

According to INSEE, the overall budget deficit in France was 4.7% of GDP in 2022, 5.4% in 2023 and worsened to 5.8% in 2024. Public debt according to Maastricht methodology amounted to 111.4% of GDP at the end of 2022, 109.8% at the end of 2023 and 113.0% at the end of 2024; in the first quarter of 2025 - already 113.9% of GDP (totaling €3.345 trillion). At the same time, by 2025, the tax burden has fallen to 42.8% of GDP and public spending has risen to 57.1% of GDP. Bayrou compares France to a company that cannot cope with its own debt growth.

Real economic growth has slowed in all recent years: +2.7% of GDP in 2022, +1.4% in 2023, and +1.1-1.2% in 2024.

Attempts to softly reduce the growth of the state budget deficit and the growth of the state debt did not work. In 2023, pension reform was implemented (gradual increase of the age to 64 and stricter requirements for length of service). On February 1, 2024, the near-market rate of electricity tariff (ex-TICFE/CSPE) was returned to 21 €/MW⋅h for households, which reduced budget transfers to support the population. The "Stability Program 2024-2027" was launched, its goal was to return to a budget deficit below 3% of GDP by 2027. But it is no longer working, partly because of the indexation of social benefits (including a 5.3% increase for basic pensions from January 1, 2024 and another 2.2% from January 1, 2025); partly because of the already happened increase in the cost of refinancing the public debt in 2023-2024; and partly because of the increase in the cost of refinancing the public debt in 2023-2024.

The Bayrou cabinet proposes a fiscal consolidation package for 2026. The core of the plan is an année blanche, a year without indexation of public spending, including social and pension spending, plus a proposal to cancel two public holidays (Easter Monday and May 8). The expected financial effect is €43.8 billion in 2026, the target for next year's budget deficit is 4.6% of GDP. The cabinet's logic: to stop the spiral of the national debt growth without provoking recession and without touching defense articles.

In detail, the plan is as follows. In 2026, pensions, social benefits and the personal income tax/CSG scale remain at 2025 levels; the overall goal is "not to spend a euro more than in 2025" (excluding debt, contributions to the EU budget and defense spending). The effect of a "year without indexation" is estimated at €7.1 billion. The plan includes a temporary solidarity contribution - an additional one-off tax for the highest income groups of employees and owners.

The state apparatus and state agencies should reduce the number of staff positions by 3,000 in 2026, and another 1,000-1,500 civil servants will be cut by revising the list of state programs. Together with a similar policy at the regional level, as well as savings on federal budget transfers to the regions, Bayrou wants to "carve out" €5.3 billion in savings.

Tightening control over fraud in compulsory health insurance (e.g., a limit on the number of sick days per year, etc.) and optimizing public procurement in this area should save France up to €10 billion.

The market is already showing that Bayrou's words about the risks in managing government debt have merit.

For 2024, France borrowed more expensively than Germany: France's 12-month short securities were offered at 3.3-3.5% p.a. (the weighted average rate of all BTFs for the year was 3.39%), while Germany's 12-month securities gave investors around 3.0% (e.g. auctioned on 7.10.2024 at 3.05%). Loans with a 10-year maturity cost Paris 3.0-3.2% and Berlin 2.2-2.6%. France was inferior to Germany - about 0.3-0.4 p.p. for short-term debt and 0.6-0.9 p.p. for ten-year bonds.

In 2025 (as of late August/early September), France still borrowed more expensively than Germany at the same maturities: for 12 months, French BTFs passed on September 1 with a weighted average rate of 2.02%, while German 12-month Bubill auctions on August 25 gave investors 1.84-1.91% (France-to-Germany spread of about 0.1-0.2 p.p.). The 10-year French benchmark TEC10 index was 3.52-3.62% between Sept. 1-5, while the 10-year Bund was around 2.67% (Sept. 5); the spread was around 0.8-0.9 p.p.

Borrowing costs have long exceeded Greek borrowing costs - Greece has still not fully recovered from the debt crisis of the early 2010s, which nearly put the entire eurozone in jeopardy and required massive bailout programs from the Xi and IMF. French debt is structurally different, but the stakes are higher - we are talking about the EU's second economy.

Over the past three years, France has been downgraded by two of the three rating agencies and received negative outlooks from two. Fitch downgraded from AA to AA- (Stable) on April 28, 2023; S&P downgraded from AA to AA- (Stable) on May 31, 2024; Moody's downgraded from Aa2 to Aa3 (Stable) on December 14, 2024. In October 2024, Fitch changed the outlook to Negative, S&P did the same on February 28, 2025. The agencies explicitly specify the conditions for upgrades: a credible plan to compress the state budget deficit, predictable budgeting rules and signs of sustainable growth without debt build-up.

It can be seen that in September 2025, investors and analysts do not believe in the success of the economic policy of the current administration in France. And it is not only because of the risk of a political crisis in case of a vote of no confidence in the Bayrou government. In France, neither the "macronists" (the name given to members of the Republican Party) nor the opposition on the left or right have any systematic proposals for solving the deficit and debt problem.

Jordão Bardela, president of the National Union, has proposed in his speeches to save up to €100 billion. His methods are partly the same as Bayrou's: saving on health care and reducing the state apparatus, but also refusing "aid to other countries" and banning social emigration. Unlike Bayrou, he did not present any calculations, but accused the prime minister of increasing spending on the state apparatus.

The Left, led by the French Socialist Party, has drafted an alternative budget for 2026: reduce the deficit by €21.7bn (twice as soft as Bayrou's €43.8bn), move the "deficit below 3% of GDP" target to 2032 (the government's target is 2029). The Socialists propose the traditional menu: introduce a 2% tax on fortunes over €100m (could generate up to €15bn a year), increase the taxation of dividends (+€3.8bn), strengthen the fight against tax optimization and abuse of social benefits (+€3.2bn).

If President Macron asks his supporters to propose an alternative, he will find a lack of ideas. Two prominent figures in his political camp, former Prime Minister Gabriel Attal and Interior Minister Bruno Retaillot, have so far made general statements on different platforms. For example, at a meeting with the Medef business association in late August, they talked about the need to develop business incubators and support mechanisms for new businesses. But the main thing, Attal noted there, is "to adopt a budget by the end of the year." They are not yet looking beyond this goal.

Bayrou's resignation hasn't happened yet, but the French press is already discussing who might replace him.

First on the list is Olivier Faure, first secretary of the French Socialist Party. The choice of a Socialist to head the cabinet minister is called a concession by Macron, who does not want to look for a right-wing candidate.

On the second line of forecasts is former prime minister Bernard Cazneuve. He may repeat the game of Bayrou, who became a "middle" prime minister, equidistant from the left and right.

The third position is held by Eric Lombard, France's minister of economy, finance, industrial and digital sovereignty, it is believed that he can continue Bayrou's case to eliminate the risks of deficits and rising public debt.

Further, the forecasts are of a point-by-point nature. Yael Bron-Pivet (Speaker of the National Assembly, Macron ally), Gérald Darmanen (Minister of Justice), Sébastien Lecornu (Minister of Defense) and Jean Castex (ex-Prime Minister), who is described as an "anti-crisis manager", have been mentioned as a candidate to head the government since August.

The chances of the Bayrou government surviving are slim to none. The right-wing and socialists immediately announced that they would vote against the vote of confidence in the cabinet.

This article was AI-translated and verified by a human editor