FRENCH GOVERNMENT TEETERS AFTER PM BARNIER FORCES THROUGH BUDGET

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French Prime Minister Michel Barnier's decision to force through the social security budget using Article 49.3 of the Constitution has sparked a major crisis, with a motion of no confidence expected to bring down the government before the end of the week ¹.

The move has been met with fierce opposition from left-wing and far-right MPs, who have joined forces to submit a motion of censure against Barnier's government. To bring down the government, a majority of the 577 MPs must support the motion ¹.

The crisis has significant implications for France's economic outlook, with the public deficit expected to exceed 6% of GDP in 2024. The Barnier government had hoped to reduce it to 5% by 2025, but without a budget voted for in 2025, this target will not be met ¹.

The political uncertainty is also expected to have a negative impact on the euro, with the potential fall of the French government adding to views that the European Central Bank will have to do the heavy lifting in 2025 ¹.

In the event of the government's fall, President Emmanuel Macron will have to appoint a new prime minister, but the likelihood of finding a replacement quickly is highly uncertain ¹. The National Assembly is extremely polarized, divided into three major camps – left, centre-right, and extreme right – who are unable to reach a compromise ¹.

The crisis has sparked concerns about the potential for a new vote of no confidence for any new government, making it challenging to pass a state budget or a social security budget before the end of the year ¹.

The situation is further complicated by the fact that there will be no dissolution of the National Assembly or early elections before July 2025, as the Constitution provides for a minimum period of one year between elections ¹.

Overall, the crisis has significant implications for France's economic outlook, political stability, and the eurozone as a whole.

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