The resignation of S\u00e9bastien Lecornu as French prime minister has thrown plans for a 2026 budget into turmoil, rattled debt investors and weakened the prospects of repairing France\u2019s dire public finances.<\/p>\n
French stocks and government bond prices dropped on Monday after Lecornu\u2019s resignation, and economists warn that France faces a repeat of last year, when the 2024 budget was rolled over after another of President Emmanuel Macron\u2019s premiers was ousted over his failure to build consensus around the next budget.<\/p>\n
Concerns about the deepening crisis are such that on Tuesday, former prime minister Edouard Philippe, one of the president\u2019s closest allies, called on him to bring forward 2027\u2019s presidential elections after next year\u2019s budget is adopted. Lecornu on Tuesday gathered party leaders, including Philippe, for talks focused on the budget.<\/p>\n
While France\u2019s growth outlook for 2025 is stronger than neighbours such as Germany, its deficit and government spending are far higher than the Eurozone average. Nervous bond investors have recently put the EU\u2019s second-biggest economy on a level with Italy, once one of the bloc\u2019s most troubled borrowers. <\/p>\n
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Lecornu\u2019s departure serves as yet another reminder of the political difficulties that have prevented the country from stabilising its public finances \u2014 a consequence of generous pandemic-era support and sweeping tax cuts rolled out by Macron from 2018.<\/p>\n
\u201cIt\u2019s not the French economy today which is in crisis, it\u2019s politics that is creating the crisis,\u201d said Mathieu Plane, an economist at the OFCE think-tank. <\/p>\n
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The French government needs to put forward a budget by October 13 to allow parliament the necessary time to debate and propose changes to the text before its adoption by December 31. That timetable had looked tight even before Lecornu\u2019s resignation.<\/p>\n
Instead, the French assembly can pass a special law that enables the government to rollover spending from 2025, avoiding a US-style shutdown until a new budget can be enacted. <\/p>\n
But this law was designed to be \u201ctransitory\u201d, said Plane. \u201cThe special budget law is useful as it prevents a shutdown, but it\u2019s a bad solution to think it can be good in any way for public finances or the economy,\u201d he said. <\/p>\n
France eventually adopted a budget for 2025 in February this year, after Fran\u00e7ois Bayrou replaced Michel Barnier as prime minister. Bayrou was also forced to resign last month after failing to get parliament\u2019s approval for his deficit-cutting measures. <\/p>\n
Rolling over spending would also come at a price because programmed increases in social security and healthcare, as well as higher interest payments, would lift the deficit to 6 per cent of GDP. At the same time, budget freezes for other areas would lead to real terms spending cuts.<\/p>\n
It would also prevent France from meeting additional commitments to increase its defence spending. Macron had pledged to raise military expenditure by \u20ac6.5bn over two years, in response to US President Donald Trump\u2019s calls for greater financial commitment from Nato allies. But the special law would not include the \u20ac3.5bn pledged for 2026, budget minister Am\u00e9lie de Montchalin warned last month in an interview with Le Monde. <\/p>\n
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Given this would raise the cost of refinancing France\u2019s debt, politicians could not simply \u201ctwiddle their thumbs\u201d when it came to enacting new budgetary plans, warned one outgoing official.<\/p>\n
Alexandra Roulet, an economist at business school Insead and a former economic adviser to Macron, said that the exact deficit reduction was less important than proving to investors that it was on a downward trajectory. <\/p>\n
\u201cWhat\u2019s important at this stage is to succeed in collectively agreeing on a trajectory that allows us to make debt sustainable,\u201d she said. <\/p>\n
But Lecornu\u2019s resignation has strengthened the market\u2019s doubts over France\u2019s ability to do this.<\/p>\n
The country\u2019s borrowing costs, at just shy of 3.6 per cent on 10-year debt, have risen to trade in line with those of Italy.<\/p>\n
The additional interest rate on French debt over Germany\u2019s benchmark Bunds, a closely watched measure of investor worry, reached as high as 0.88 percentage points on Monday, close to its widest level since 2012, before coming back a little to 0.85 percentage points. <\/p>\n
France has already suffered a string of credit downgrades in recent months. It \u201cmay have to worry about another potential credit rating downgrade, the longer this uncertainty goes on,\u201d said Robert Dishner, a senior portfolio manager at Neuberger Berman.<\/p>\n
The continued political crisis has already weighed significantly on the French economy. Plane and Eric Heyer, professors at Sciences Po\u2019s OFCE, have modelled a 0.5 percentage point hit to French GDP since Macron\u2019s decision to dissolve parliament in June 2024. <\/p>\n
The economic hit is linked to a slowdown in business investment and hiring, while household savings reached \u20ac91bn in the first quarter of 2025, close to the historic high of \u20ac97bn during the Covid-19 pandemic. <\/p>\n
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\u201cLess consumption, less investment and less employment has a consequence for growth\u2009.\u2009.\u2009. that starts to be very significant,\u201d Heyer said. <\/p>\n
Patrick Martin, head of business group Medef, lamented the impact on business investment from the protracted political crisis, telling France Info on Tuesday: \u201cFrench business investment has been going down for more than two years\u2009.\u2009.\u2009. neighbouring countries are accelerating [and] we have this political spectacle that depresses us.\u201d<\/p>\n
Without a return to the ballot box, few see any means of tackling France\u2019s budgetary crisis.<\/p>\n
\u201cWithout new elections, we\u2019re going to be stuck in this climate,\u201d said Heyer. \u201cThat doesn\u2019t mean that with new elections we\u2019re sure to come out of the uncertainty, but in any case, without new elections, we\u2019re sure to stay there.\u201d<\/p>\n
Data visualisation by Janina Conboye<\/em><\/p>\n<\/div>\n #Frances #political #crisis #leaves #budget #plans #disarray<\/p>\n","protected":false},"excerpt":{"rendered":" The resignation of S\u00e9bastien Lecornu as French prime minister has thrown plans for a 2026 budget into turmoil, rattled debt investors and weakened the prospects of repairing France\u2019s dire public finances. French stocks and government bond prices dropped on Monday after Lecornu\u2019s resignation, and economists warn that France faces a repeat of last year, when […]<\/p>\n","protected":false},"author":1,"featured_media":2293,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[153,1118,1120,213,1119,79,1110],"class_list":{"0":"post-2292","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-budget","9":"tag-crisis","10":"tag-disarray","11":"tag-frances","12":"tag-leaves","13":"tag-plans","14":"tag-political"},"_links":{"self":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts\/2292","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2292"}],"version-history":[{"count":0,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts\/2292\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/media\/2293"}],"wp:attachment":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}