Is France on the Verge of an Economic Collapse?
Cairo: Hani Kamal El-Din
On October 4, the French National Assembly (the lower house of parliament) passed a vote of no confidence against Prime Minister Michel Barnier’s government. With 331 votes in favor, surpassing the required 289 votes, the motion led to the resignation of the Prime Minister and his cabinet. This unprecedented event marks a turning point in French politics, signaling deepening political instability.
In the aftermath of this vote, Prime Minister Barnier is expected to remain in office as the acting head of government until President Emmanuel Macron selects a successor. The decision to move forward with the no-confidence vote was driven by the left-wing coalition “New Popular Front” and the right-wing party of Marine Le Pen, “National Rally.” This unity among political factions, despite their ideological differences, highlights the growing dissatisfaction with Barnier’s handling of critical national matters.
The trigger for this motion of no confidence was Barnier’s decision to push through the national budget for the coming year without parliamentary approval. In negotiations with the parliamentary factions, Barnier had made significant concessions regarding spending and taxation, hoping to secure the support of a majority of lawmakers. However, despite these efforts, he was still unable to gather the necessary votes. On December 2, in an attempt to bypass the impasse, Barnier chose to apply a special procedure under the French Constitution, which allows the approval of the budget without parliamentary discussion or a vote, keeping the government’s original draft intact.
The budget proposed by Barnier included substantial cuts to public sector spending, particularly in healthcare, as well as the cancellation of pension indexation, and other unpopular measures. These austerity policies have triggered widespread backlash across the political spectrum, making Barnier’s position untenable.
This is only the second time in the history of the French Fifth Republic that a government has been forced to resign due to a vote of no confidence, the first instance being in 1962 when Georges Pompidou’s cabinet was ousted. However, votes of confidence or no-confidence motions are not unusual in the French National Assembly. Since 1958, more than 130 such votes have been conducted.
Michel Barnier, a seasoned veteran of France’s center-right “Republicans” party, was appointed as the prime minister by President Macron on September 5. Barnier’s political career spans numerous leadership roles, both in France and in the European Union, including his tenure as the EU’s chief negotiator for Brexit from 2016 to 2019.
While Barnier’s government may technically remain in power as an interim administration, the French political system has become increasingly unpredictable. It took Macron 50 days after the special elections in July to find a new prime minister, and under the French constitution, new elections cannot be called within a year of the previous ones.
For the first time in the history of the Fifth Republic, Macron’s ability to maneuver politically is rapidly dwindling. Opposition parties are even calling for the president to step down. Should Macron resign, it would trigger new presidential elections within 35 days, further complicating the situation.
Under the French constitution, the only possibility for Macron to dissolve the National Assembly is by summer next year, thus giving him little room for maneuver. He is left with the difficult task of negotiating with all political parties to find a new prime minister. However, there is no guarantee that any new candidate will avoid facing a similar no-confidence motion.
Analyst Karsten Nickel, deputy director of research at the consulting firm Teneo, wrote that it is unlikely that Barnier will be formally reappointed. Instead, Macron will most likely ask him to continue in the role of acting prime minister. This interim arrangement may extend for months, given the impossibility of holding new elections until next year.
The likely scenario is that the interim government will propose a special constitutional law to extend the 2024 budget without the previously planned cuts to spending or tax increases, while allowing the government to continue collecting taxes. However, analysts predict that the government will not succeed in implementing any significant reforms.
Meanwhile, the political turmoil has had significant economic repercussions. French external borrowing costs are rising as the euro remains under pressure due to negative sentiment exacerbated by weak manufacturing data from the Eurozone and the ongoing political instability in Germany. Analysts warn that France faces a growing budget deficit, and the cost of financing this deficit will continue to rise as the yield on French government bonds increases in response to the prevailing uncertainty.
The situation is grim, with international investors now viewing France’s economic outlook as “very poor.” Javier Díaz-Himénez, a professor of economics at Spain’s IESE Business School, stated in an interview with CNBC that France could soon face a de facto default, not because of an inability to meet its debt obligations but due to a lack of an approved budget. Rating agencies have already warned that French government bonds now carry a higher premium than Greek bonds, an unusual and worrying sign for the country’s financial health.
The growing instability also threatens France’s industrial sectors, especially those in chemicals, metallurgy, and machinery, which are struggling to compete with the heavily subsidized industries in China and the United States. The French economy risks losing its industrial base as thousands of jobs are at risk, according to Industry Minister Marc Ferracci. Between April and August, the number of plant closures in France surpassed the number of new openings, signaling a worrying trend of deindustrialization.
This period of political and economic turbulence in France raises serious concerns for the future of the nation’s economy. French public debt continues to soar, and the national deficit remains a significant challenge. As the country faces growing pressure on multiple fronts, the question remains whether a new government can bring the situation under control before it’s too late.
