France in Crisis
When we arrived in France five years ago, I said to my wife that I thought France was about 10 years behind the UK in its politics. According to that thinking, Macron was France’s Tony Blair – the last chance of holding off the populists. 2026 would be France’s Brexit moment, when the lunatics took over the asylum. I was wrong. The chaos has overwhelmed France in less time than that.
When Macron’s Renaissance Party and its Renew alliance got pulverised in the European Parliamentary elections last year, no one thought an appropriate response would be to call Legislative Elections. No one thought it, because it was so patently stupid. The hard-right Rassemblement National was on a roll - they had comprehensively won the election campaign, even if the result was an increase in Euro Deputies of just eight (taking them from 22 to 30 and depleting Macron’s MEPs from 21 to 13 - France has 81 Euro Deputies) and relished the chance of converting European power into French power.
Either Macron believed that the European Parliament vote was a protest vote and that when it came to national politics, the French voter would return to normality; or that once the French population was exposed during the campaign to the nonsense that is RN’s fiscal policy; its discriminatory attitude towards immigrants (which is incompatible with ‘Egalité’); and its inimical protectionist instincts, they would ultimately reject it. Either way, it was a terrible miscalculation.
The lunacy of calling an election in those circumstances quickly became clear. In the first round, the RN won over 33% of the vote – and would have won more had it not been for the hastily-assembled Nouveau Front Populaire (named after the original FP, formed in 1935 to oppose the rise of fascism in France) which took over 28% of the vote. In a sign of how unpopular Macron was (even then), his own centrist coalition only won 21%. Even though the RN won over 37% of the vote in the second round, an electoral non-aggression pact between Macron’s centrists and the NFP limited the RN’s final seat tally to 143, with the centrists on 168 and the NFP on 182 – creating a hung Parliament in which no individual Party or bloc came close to the 289 seats required to hold a majority. France’s voting system is designed to avoid hung Parliaments and the country has little experience of political coalition-building or the compromises necessary to manage such a splintered legislative.
The absence of that experience has led to a period of exceptional political churn. Like the UK (only over a shorter period), France has burned through Prime Ministers. The UK has had six Premiers since 2016: France has had seven in the eight years of Macron’s Presidency. The fact that each has served a shorter mandate than their predecessor (with the exception of Bayrou) is another indicator of the increasing difficulty of governing a France riven with such political polarisation, as is the increasingly immutable perception of Macron as Political Dead-man Walking.
And so we arrive at this week’s tumultuous events.
On Monday, the latest PM (Sebastian Lecornu) presented his Cabinet – essentially a continuity Cabinet, with many of the Ministers from previous administrations either still in place or recycled. 14 hours later, Lecornu resigned, apparently after the centre right Republicans (who had at least a couple of Ministers in the Government, in complete contradistinction to their actual performance in both the Euro and legislative elections) pulled their support from Lecornu – they say over objections to the return to government of Bruno le Maire (previously the Finance Minister) - without which, he could not form a government.
France is running a big deficit. Under EU rules, countries in the Euro-zone are only supposed to have deficits at a maximum of 3% of GDP. France’s deficit is almost twice that. Its debt-to-GDP ratio is no better - the EU’s third-highest and almost twice the ceiling permitted. And, with the cost of servicing the debt spooking ratings agencies into downgrading France’s sovereign rating, Barnier, Bayrou and now Lecornu were faced with the task of finding cuts to the generous French welfare system which would begin to reduce the deficit. But with the hard-right essentially refusing to support any budgetary proposal and the left rejecting cuts to the welfare system, each successive PM came up against a brick wall when they tried to push their budget through. The Left’s opposition to any budget bill was stiffened by their irritation that, despite having won most seats in the Legislative Elections, Macron had repeatedly refused to look to them to proffer a PM. Until now, he has rejected that solution because of their implacable opposition to (and intention to repeal) his signature reform of raising the retirement age to 64.
Has this latest bout of political instability had an impact on financial markets?
Interestingly, although modelling from Science Po in Paris suggests that the decision to call legislative elections last year has cost the French economy 0.5% of GDP growth, France’s 2025 growth outlook is stronger than that for Germany. So for once, it is not the economy, but the inability of the politicians to accept and address the twin threat of deficit and government spending (which are both higher than the Eurozone average) which is causing nervousness on the bond markets.
In the immediate aftermath of Lecornu’s resignation, yields on French government bonds climbed leaving French 10-year bond yields higher than those of their Italian counterparts), demonstrating that the bond market is now pricing in a substantial governance risk premium for France and, perhaps, a loss of confidence in the French political system. The policy outlook for the ECB, already complicated by the need to combat persistent Eurozone inflation, at the same time as encouraging economic growth which remains weak overall in the Eurozone, is made worse by the widening gap between the 10-year French bond and its German equivalent, which increases the risk of market fragmentation.
So What’s Next?
Lecornu’s resignation seemed genuine at the time. It led immediately to appeals for Macron to call snap legislative elections – something which the RN desperately want, but which Macron, having burnt his fingers in that fire so badly last year, is very reluctant to do. Or to resign and trigger Presidential elections – something which the far-left desperately want, but which Macron has repeatedly said he would not do, fearing a shoot-out in the second round between Hard-Right and Far-Left candidates.
The RN would prefer to avoid immediate Presidential elections as their leader, Marine le Pen, is currently banned from standing for elected office, following her conviction for embezzlement of European funds – her appeal is not due to be heard until January 2026. If Presidential elections were to be called now, the RN candidate would therefore be the young Jordan Bardella, whose only experience of power is as a (rather ineffectual) MEP. For the same reason, the NFP (or what is left of it), are very keen to hold Presidential elections now as they rather fancy the chances of Jean-Luc Mélenchon (a grizzled, far-left firebrand) against the callow Bardella.
But parliamentary elections are far from the panacea they may appear. Macron (rightly) fears that legislative elections would serve only to worsen the fragmentation of the French Parliament and that he would end up with even fewer centrist MPs - just as happened when Theresa May called an election in 2019 with the intention of strengthening her hand and force through her Brexit Deal. Whether that is correct, most analysts agree that new elections would be unlikely to break the deadlock and would almost certainly return another hung parliament (especially since the NFP has now fractured back into its constituent parts of the Parti Socialist and La France Insoumise) – wasting more political time for no discernible benefit.
What’s are the other options if Macron will not call either Legislative or Presidential elections?
Macron could appoint another PM and ask them to form a technocratic government whose goal would be to get a new budget past the Parliament. The law requires 70 days for Parliament to consider and vote on a budget. That means that a new government would have to put forward a budget proposal by October 13 to enable adoption by Parliament by December 31.
However, the National Assembly can pass a law that would allow the government to rollover spending from 2025 until a new budget can be agreed (as happened under PM Barnier at the end of 2024). Whilst this provision enables France to avoid a US-style shut-down, it comes with major disadvantages – already programmed increases in social security and healthcare, as well as higher interest payments, would lift the deficit to 6% of GDP, whilst budget freezes would simultaneously lead to real-terms spending cuts in other areas (including, importantly defence, where Macron had pledged to raise military expenditure by €6.5bn over two years). But, with debt and deficit so high, something will need to be done.
And it is unclear how another new PM (even with an apolitical and technocratic government in place) would succeed in pushing through a budget where the previous three have failed. This rationale was, at least in part, behind the comments from Macron’s first PM, Edouard Philip who broke ranks and called on the President to resign - apparently, initially at least, supported by Macron’s youngest PM Gabriel Attal, who said he ‘no longer understood the President’s decisions’. Their comments suggested that Macron’s future was very much in the balance and his would-be successors were already jostling for position in the race to succeed him. Le Monde published an editorial castigating France’s “entire political class”, which was “incapable of rising to the challenge”, preferring to position themselves for a run at the Presidency, rather than “build a compromise essential for the months to come”.
But there is some logic in their argument. Not only is Macron a lame-duck President and deeply unpopular in the country, but with legislative elections only likely to result in an even worse deadlock, new Presidential elections might offer the best option to break the cycle and bring France’s spiralling political crisis to an end (though the idea of seeing either Bardella, Le Pen, or Mélenchon (or his heir-apparent Manuel Bompard) in the Elysee makes me deeply queasy).
A Third Way Out?
However, instead of taking either of those two options, Macron asked Lecornu to spend a further 48 hours trying to ‘define a platform for action and stability’, hinting that he might be prepared to call fresh legislative elections if Lecornu failed in his last-chance mission. Given that the Nation’s circumstances had not materially changed since he and his two immediate predecessors had failed to find a compromise, many commentators felt justified in asking why a last-ditch effort over 48 hours had any higher chance of success.
However, rumours have swirled all day that Lecornu and the Socialists have reached an agreement under which the Retirement Law would be suspended or repealed as well as the introduction of a wealth tax and the repeal (pr watering down of much of Macron’s pro-business reforms). In return, the Socialists would support a further attempt to create a government. It is unclear whether they would stick to their oft-declared position that the next PM would have to be from the left (possibly Bernard Cazeneuve) or would be prepared to accept Lecornu#2 as a compromise to ensure continued support from the Centre. If such a compromise has been reached, it slightly begs the question why it was not reached before. A cynic might suggest it was always on the cards and that Lecornu’s resignation was simply a piece of political theatre to give Macron the cover he needed to back down on his position over the Retirement Law.
Such a climb down would be the ultimate humiliation for Macron who has long resisted either appointing a PM from the left, or any changes to his flagship retirement policy – it would leave his legacy in tatters, but it might allow him to limp on in place until 2027.
Lecornu is due to address the Nation at 2000 this evening. I, for one, along with millions of other French citizens, will be glued to my radio to see whether France has managed to find a way out of the rabbit hole….