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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer advises the Observatory Group and is a senior fellow at the German Council on Foreign Relations
After having tried to prepare the French public and political class for the inevitability of a tough budget of tax rises and spending cuts, Prime Minister François Bayrou seems to have thrown in the towel. Indeed, by deciding to call for a vote of confidence on September 8, he has chosen to expose that he doesn’t have the majority to govern and that France doesn’t have a parliament prepared to face the reality of its yawning public deficit.
Earlier this year, Bayrou had asked President Emmanuel Macron to submit his broad fiscal plan to a referendum, and to pave the way for an electoral reform introducing proportional representation (a nod to far-right leader Marine Le Pen). With that he hoped not only to start the necessary process of fiscal consolidation but also create the political momentum to prepare for the presidential election in 2027. Macron flatly rejected the demand, leaving the frustrated prime minister with limited options.
Bayrou’s current gambit, however, is a dereliction of duty. It will leave the next government with the task of starting the budgetary negotiations from scratch, when this government could have at least tried to undertake the dirty sacrificial work of securing the best possible compromise in parliament as his predecessor Michel Barnier did. Instead, Bayrou has in effect renounced his duties, and his finance minister opted to undermine the credibility of France’s signature by publicly betting that the country’s borrowing costs would rise beyond that of fiscal laggards such as Italy, and that the IMF could be called in to deal with the country’s adjustment needs.
Macron must now make a crucial choice. He could try to change the political dynamic and parliamentary arithmetic by taking the risk of calling another snap parliamentary election, which would only produce a worse electoral result for his party and probably bring the far-right Rassemblement National closer to an absolute majority. Or he could choose to make do with the current parliament, and help with the heavy task of passing the budget through some creative parliamentary procedure and astute changes to the balance of government revenue and spending.
As he has done in the past, Macron should force Bayrou to carry on his obligations temporarily as a caretaker and introduce a budget law before October, as established by the constitution.
If no budget law is introduced by then, the government could instead pass a special law authorising it to collect taxes and carry on spending as per the preceding year’s budget. This would still allow the government to freeze spending by decree.
Alternatively, the government could opt to drag on parliamentary debates such that no vote takes place within 70 days of the budget being submitted, paving the way for the adoption of the budget by executive decree in keeping with Article 47 of France’s constitution. This original and effective option was studied by Barnier last year, who instead opted for the riskier Article 49.3, staking the confidence of his government on the budget vote, by which he fell.
On substance, the government will have to create some goodwill on the left by making a few small and symbolic concessions on the 2023 pension reform and find spending cuts that are more targeted and sustainable than those proposed by Bayrou. It also needs to cautiously calibrate tax increases on the wealthy to guarantee a less socially regressive fiscal adjustment without undermining the country’s precarious business environment.
This is a difficult economic and political balancing act, but it is wholly achievable. The alternative is a messy snap election or another doomed budget that would only expose further France’s daunting fiscal challenge and its deepening political impasse.
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