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France is facing a challenging crisis following Prime Minister Francois Bayrou’s push for an austerity budget plan that could reduce France’s debt, which has sparked controversy across the French government.
Bayrou has announced a confidence vote, which is due on September 8th. The vote is tied to his budget-cutting proposal, impacting French politics and markets.
The plan, which is aimed to counter France’s growing public deficit, has been rejected by opposition parties, which threatens the collapse of his minority government.
Political Crisis Deepens
France’s minority government is on the brink of collapse after opposition parties, including the far-right National Rally, the Greens and the Socialists have vowed to reject Bayrou’s debt reduction plan at the confidence vote.
Bayrou’s proposal includes the freezing of welfare, pensions, tax brackets at 2025 levels and reducing two public holidays, which led to heavy criticism by the government parties. ⁽¹⁾
If the government loses the confidence vote on September 8th, French President Macron could face tough choices, which are either dissolving the parliament for new elections or appoint a new prime minister to form a new government. These options may not even guarantee a resolution to France’s political crisis, which worsened from July 2024. ⁽²⁾
Prime Minister Bayrou urged lawmakers to apply responsibility instead of chaos while addressing the public on August 26th. However, the opposition parties appear to have united together to oppose his government and bring it down, increasing the chances of more instability.
Economic Challenges and Shaken Markets
France’s public deficit remains an issue as it reached 5.8% of its GDP in 2024. The European Union suggests a 3% deficit target to manage France’s excessive debt, but Prime Minister Bayrou has warned that if there was no action taken, the deficit would continue to grow. ⁽³⁾
Bayrou also highlighted France’s independence on debt, which indicates an increase of 2 trillion euros for 20 years due to crises such as the 2008 global financial crisis, Covid-19 pandemic, Russia-Ukraine war, inflation and US tariffs. ⁽⁴⁾
Bayrou’s 2026 budget plan proposal consists of 44 billion euros in fiscal tightening. The previous minority government was led by Michel Barnier and collapsed after forcing through a 2025 budget without parliamentary approval. Now, Bayrou’s plan risks a similar fate. ⁽⁵⁾
The political instability has shaken France’s financial markets, with the CAC 40 index declining 2% on August 26th. French bond yields rose with the 10-year yield rising 2 basis points and the 30-year yield rising 4 basis point. ⁽⁶⁾
Challenges for French Companies
French corporate leaders are worried about the economic and political fallout. The budget passed in February after the ouster of Barnier’s government, which included tax hikes on major companies. Opposition parties, eager to push any new fiscal strategy, are pushing for more tax hikes which raises concerns on French companies.
The combination of the political chaos and sluggish economic growth of 1.2% in 2024 threatens to reduce tax revenues and present more challenges to budget repairs. French President Macron’s business reforms, which relies on tax cuts to boost growth, are also exposed to risks if the economy continues to weaken. ⁽⁷⁾
Looking Ahead
If Prime Minster Bayrou’s government fails, Macron would have to appoint a replacement to either form a new minority government or dissolve it for new elections.
Prolonged economic and political crises could make it harder for France to support its fiscal policies. This issue is expected to dominate discussions at the Medef business federation’s annual conference in Paris, where Bayrou and his ministers will speak on Thursday to rally support. ⁽⁸⁾
