Since the French government did not survive the December 4 no-confidence vote, there is no government now to pass the budget for next year. Prime Minister Michel Barnier has resigned but will remain in a caretaker position until a replacement is found through political negotiations. This essay discusses the ramifications of the vote, possible next steps for France, and how those choices may affect the EU economy overall.
Key Insights
- France has an urgent need to reduce its fiscal deficit and provide a credible reduction path for its debt in the next four years. Barnier presented a very tough budget (beyond what the European Commission demanded) and was met with strong objections from parties across the political spectrum.
- Given these objections, Barnier opted to use a constitutional measure to pass a social security financial bill, equivalent to using executive orders that bypass parliament. The only opposition that parties in parliament could bring was to demand a vote of no confidence.
- This is the first time in 60 years that a French prime minister has failed a vote of confidence. Though this is a rare event, the French constitution has provisions that ensure the smooth functioning of the state until a political solution is found.
- While this uncertainty adds to an already unfavorable and deteriorating economic environment, this vote of no confidence is not a shock. That said, with the French government occupied with domestic issues, it will not be actively engaging at the EU level, which will delay important decisions on how to promote the bloc’s competitiveness. The European Central Bank (ECB) is expected to continue to reduce interest rates well into 2025, which will reduce pressure on spreads.
How did we get here?
Barnier proposed a budget that was very aggressive in terms of trying to reduce the deficit. France is under the European Excessive Deficit Procedure (EDP), which means the government needs to present a credible path of deficit reduction for the next four years that the European Commission must approve. The budget Barnier presented in Brussels went beyond what the European Commission would demand of France. Domestically, it was met with huge opposition from the Rassemblement National (RN), France’s extreme right, which demanded many changes. The Nouveau Front Populaire (NFP) coalition of the left had equally large objections.
Since the French government did not survive the December 4 no-confidence vote, there is no government now to pass the budget for next year. Prime Minister Michel Barnier has resigned but will remain in a caretaker position until a replacement is found through political negotiations. This essay discusses the ramifications of the vote, possible next steps for France, and how those choices may affect the EU economy overall.
Key Insights
- France has an urgent need to reduce its fiscal deficit and provide a credible reduction path for its debt in the next four years. Barnier presented a very tough budget (beyond what the European Commission demanded) and was met with strong objections from parties across the political spectrum.
- Given these objections, Barnier opted to use a constitutional measure to pass a social security financial bill, equivalent to using executive orders that bypass parliament. The only opposition that parties in parliament could bring was to demand a vote of no confidence.
- This is the first time in 60 years that a French prime minister has failed a vote of confidence. Though this is a rare event, the French constitution has provisions that ensure the smooth functioning of the state until a political solution is found.
- While this uncertainty adds to an already unfavorable and deteriorating economic environment, this vote of no confidence is not a shock. That said, with the French government occupied with domestic issues, it will not be actively engaging at the EU level, which will delay important decisions on how to promote the bloc’s competitiveness. The European Central Bank (ECB) is expected to continue to reduce interest rates well into 2025, which will reduce pressure on spreads.
How did we get here?
Barnier proposed a budget that was very aggressive in terms of trying to reduce the deficit. France is under the European Excessive Deficit Procedure (EDP), which means the government needs to present a credible path of deficit reduction for the next four years that the European Commission must approve. The budget Barnier presented in Brussels went beyond what the European Commission would demand of France. Domestically, it was met with huge opposition from the Rassemblement National (RN), France’s extreme right, which demanded many changes. The Nouveau Front Populaire (NFP) coalition of the left had equally large objections.
Given all these objections, Barnier opted to use a constitutional measure (article 49.3) to pass a social security financial bill. This is equivalent to using an executive order to try to bypass the parliament’s approval of the bill. The only opposition the parliament can bring is to demand a vote of no confidence. And indeed, Barnier’s efforts backfired, with both the NFP and the RN demanding such a vote. This is the first time in 60 years that a French government has not survived a vote of no confidence, which makes it a big deal, symbolically at the very least.
What happens next?
A vote of no confidence means the president needs to call elections. However, President Emmanuel Macron already opted to call parliamentary elections after his party defeat during the European elections in June 2024, and the constitution does not allow him to call the same elections again for one year (i.e., until June 2025). The European elections outcome did not require hi
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