French Political Turmoil: A New Era of Uncertainty
The recent collapse of French Prime Minister Michel Barnier’s government marks the culmination of months of political instability in France. An unlikely alliance between opposition parties on the left and far right led to a no-confidence vote, resulting in Barnier’s resignation. This event ushers in a new period of political turmoil and uncertainty in Paris, according to analysts and economists.
A Divided National Assembly
The roots of the crisis can be traced back to President Emmanuel Macron’s decision to call snap parliamentary elections earlier this year. Instead of strengthening his centrist alliance’s power base, the move backfired, leading to a divided National Assembly with empowered leftwing and far-right factions. This division has created a challenging environment for any government to operate effectively.
Finding a New Prime Minister
President Macron is now under pressure to appoint a replacement prime minister quickly. The next candidate will likely face the same challenges as Barnier, with the left and right expected to push their own agendas for the 2025 budget. According to Charlotte de Montpellier, senior economist at ING, “France is entering a new era of political instability… finding a new prime minister who will not face a motion of no confidence directly will be a very difficult mission.”
A Stopgap Solution?
Analysts predict that Macron will choose a successor to Barnier within days, but the candidate’s premiership might be short-lived until new parliamentary elections next July. Mujtaba Rahman, managing director of Europe at Eurasia Group, notes that the candidate’s first job will be to push through a 2024 budget rollover, followed by an attempt to revive Barnier’s deficit-cutting 2025 budget with amendments that might appeal to the left or far right.
Economic Implications
The ongoing political crisis is expected to have significant economic implications. France’s budget deficit is predicted to hit 6.1% of GDP in 2024, and is likely to rise further if measures are not taken to rein in spending. The provisional budget, which rolls over the 2024 budget into next year, may prevent an immediate crisis but delays the need to tackle France’s fiscal problems. ING expects France’s economy to grow by 0.6% in 2025, compared with 1.1% in 2024, but warns that a downward revision cannot be ruled out if the instability persists.
Market Reaction
Investors appear to have accepted the fall of the French government as a fait accompli, with the yield on France’s benchmark 10-year government bond relatively stable around 2.9%. However, Chris Beauchamp, chief market analyst at IG Markets, notes that markets might not remain calm for long, particularly if the opposition’s calls for President Macron to resign and call an early presidential election materialize.
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