Why is the government of France on the brink of collapse, again? | Debt news

Last week, French Prime Minister Francois Bayro called for Parliament to hold an early -to -expected vote. Next week’s polling can lead to the collapse of his middle government and raises a period of instability in the second largest economy in the European Union.

The vote will see on Monday at the National Assembly, the lower parliament of Parliament Payro Don’t just try to secure approval of himself and his government, but also for his popular budget. But the opposition parties said that they would vote against him and shorten his government’s time.

President Emmanuel Macron, who promised to stay until 2027, may face the complex task of appointing Prime Minister for the third time in One year After the hasty solution in Parliament in June 2024.

Financial markets were shaken after Bayro announced on August 26. Interest payments on bonds of 10 years increased to 3.5 percent on Monday, which are higher than 3.36 percent of Greece.

What are the Bayu budget proposals?

Initially, it seems that the economy of France is working relatively well. Government debt pile is less, relative to the size of its economy, more than Italy. The cost of financing the annual benefits on its debts is much lower than those of the United Kingdom.

But Paris is fighting to keep a cover on its spending. Last year, France’s budget deficit reached 5.8 percent (168.6 billion euros, or 196 billion dollars) of GDP (GDP). The official European Union goal is not more than 3 percent. Investors are concerned that the constant deficit of France will cause the debt rates to rise and undermine the degree of credit.

For his part, Bayrou tries to reduce the government’s borrowing to 4.6 percent of GDP in 2026 and to 2.8 percent by 2029. In turn, it would reduce the total debt to GDP to 117.2 % in 2029, compared to 125.3 percent if no changes are made.

Its plan includes 43.8 billion euros ($ 51 billion) in savings for 2026, and 80 percent of which will come from spending cuts, such as discounts in employing the public sector, suspending pension indexing to inflation and clearing two years.

Latest taxes on high observers are among the other proposals that have been considered.

The Prime Minister’s proposals come at the head of the move to 2023 from Macron to Raising the age of retirement France For two to 64 years. At that time, the president argued that excessive pension payments were a traction in the country’s financial affairs.

Before the confidence vote, the French leadership again tried to form a discussion about the future of the country.

“The issue, the question, is not the fate of the prime minister or … even the fate of the government. The question is the fate of France,” Bayro said.

On August 26, Finance Minister Eric Lombard warned that unless France controls its debts, interventions from the International Monetary Fund, the global lender for the last resort – usually for the emerging market countries – “a risk before us.”

How did the political parties respond to Bayro’s gambling?

Since the Bayro Middle and conservative animal coalition does not carry an explicit majority in the parliament of France, the Prime Minister will have to rely on support – or at least refrain from opponents on the left and right to pass his budget.

But the opposition parties, which operate more than 320 seats in the National Assembly of 577 seats, have already said that they would vote against Payro. If it is sticking to this, it will be impossible for the current government to survive.

The left -wing legislators said that they wanted to “make the government a fall”, and the socialists promised to reject an “unfair budget.” The National Secretary of the Greens, Marine Tondelier, described Payro’s vote as “a resignation of reality.”

The leader of the Socialist Party, Olivier, said he would vote against the government. “He chose to go.”

Elsewhere, Jordan BardelaThe head of the National Assembly said that his extremist right -wing party “will never vote for a government that makes its French decisions suffer.” Berdla said that Payro actually declared “the end of his government.”

How did the financial markets respond?

Political instability increased the cost of government debt (known as the return) and reduced the value of the main French stocks with shares in BNP Paribas, Credit Agricole and Societe Generele all decreased from 8 to 10 percent last week.

For Davide Oneglia, a European analyst at the TS Lombard, political quarrels followed the difference between the 10 -year French borrowing costs.

Since the beginning of this year, the borrowing premium in France has expanded on Germany – a major measure of macroeconomic risk – by almost a percentage point. France’s 10 -year revenues are now among the highest in the European Union, as it recently exceeded Greece and Portugal.

“The political situation causes wider differences (between borrowing costs in France and its European peers). We are not in a complete debt crisis so far, but the financial situation has become more urgent,” said one.

In December, the MOODY Credit Classification agency reduced France from “AA3” from “AA2” amid pressure on Paris’s tense financing. MOODY step is compatible with those in competing S&P and Fitch, which has also reduced its classifications to France since 2023.

What can happen next?

Most commentators said that Peru will likely lose confidence in the next week, forcing Macron to replace him with another prime minister. This would return the president to a dead end about the budget, which has failed to address since the Snap elections last year.

It will also not change the account in Parliament. Because Macron is unlikely to appoint the prime minister who defends the flexible fiscal policy, which can win parliament, it seems to be a Political Gridlock.

Some politicians, including Marine Le Pen from the National Assembly, urged Macron to summon new legislative elections in the hope of re -equipping the political surface before France’s presidential elections in 2027. But the French president will be cautious about this option.

Recent opinion polls do not show any material change in voting intentions since last year’s vote, which has led to the current parliament. Meanwhile, the chances of a national rally victory in the upcoming presidential elections are stronger than ever: the party has been leading in opinion polls for this vote constantly over the past two years. In May, the polls had potential candidates for the National Assembly, Jordan Bartella, by 30 percent and 31 percent, respectively, with the next candidate by 21 percent.

In the event of the national victory for the presidency, Oneglia believes Italian elections in 2022 Provide a useful scheme. He said, referring to Italian Prime Minister Georgia Miloni: “Soon the right -wing Milonian Popular Party became a financial central when they reached power,” referring to Italian Prime Minister Georgia Meloni.

He said: “It will not surprise me to see a similar result in France in 2027 (if the National Assembly wins). Until then, I expect the political situation to bear the position of” kicking in the long grass. “