French Government Expected to Fall

France24 reports PM faces new no-confidence vote over debt crisis

Fears of a new political crisis swept through France on Tuesday as the minority government of Francois Bayrou appeared likely to be ousted in a confidence vote next month.

France’s embattled prime minister stunned the country on Monday, announcing he had asked President Emmanuel Macron to convene an extraordinary session of parliament on September 8.

Bayrou needs parliamentary backing for his austerity measures to reduce France’s soaring public debt but the main opposition parties—from the far-right to the hard-left—said they would not back the prime minister’s plan.

Far-right leader Marine Le Pen – whose National Rally party has abstained in previous votes of confidence against Bayrou, allowing him to survive – now says she wants parliament dissolved and new parliamentary elections called.

Hard-left firebrand Jean-Luc Melenchon, who has launched previous unsuccessful attempts to bring down Bayrou, suggested that Macron must resign if Bayrou, 74, loses this time.

Macron, 47, has repeatedly faced calls to resign since dissolving parliament last year after far-right gains in European elections, plunging the country into crisis.

But he has insisted that he will stay on until the end of his term and has also said he wants to avoid dissolving parliament and calling snap parliamentary elections again.

Were Bayrou to be rejected by parliament, it would leave Macron seeking his seventh prime minister and cast a heavy shadow over the remaining two years of his presidential mandate.

Bayrou wants to save about 44 billion euros ($51 billion) with measures that include reducing the number of public holidays and placing a freeze on spending increases.

Notice that the “austerity” measures do not cut spending. They only freeze increases.

Neither the Left nor the Right is happy about the alleged austerity.

Fears of a French Government Collapse Send Its Borrowing Costs Soaring

The New York Times reports Fears of a French Government Collapse Send Its Borrowing Costs Soaring

Fears that the government of President Emmanuel Macron of France may collapse for a second time in nine months amid a looming debt crisis stoked alarm in financial markets on Tuesday. Investors hammered the French stock market and pushed up the country’s sovereign borrowing costs to among the highest in the eurozone.

Fanning the concerns was a warning early on Tuesday by the French finance minister, Eric Lombard, that France may need assistance from the International Monetary Fund if the crisis cannot be brought under control. “I cannot assure you that the risk of I.M.F. intervention does not exist,” he said in an interview on French radio.

But he later clarified in a social media post that France was “not under threat of intervention from the IMF, the ECB, or any other international organization,” adding that France was currently financing its debt “without difficulty.”

Labor unions, which oppose the cuts, met on Tuesday to discuss how to proceed, while calls grew on social media to “close down France” on Sept. 10 by boycotting work, schools and shops.

In a speech Tuesday to the C.F.D.T., France’s biggest labor organization, Mr. Bayrou said lawmakers had “13 days to choose between chaos or responsibility.”

Mr. Lombard, the finance minister, said that without urgent action, the interest rate that France would have to pay investors to buy its sovereign debt would surge within two weeks past that of Italy, another big European country with troubled finances. If that happens, “we will really have fallen to the bottom of the pile in the European Union,” he said.

What’s it All About?

The crisis revolves around Eurozone fiscal rules. The EU never enforced its Growth and Stability Pact or Maastricht Treaty rules. But now it wants to.

France is one of the worst offenders.

Compliance Rules

1. Deficit rule: a country is compliant if (i) the budget balance of general government is equal or larger than -3% of GDP or, (ii) in case the -3% of GDP threshold is breached, the deviation remains small (max 0.5% of GDP) and limited to one year.
2. Debt rule: a country is compliant if the general government debt-to-GDP ratio is below 60% of GDP or if the excess above 60% of GDP has been declining by 1/20 on average over the past three years.

France’s general government gross debt is projected to reach approximately 116.0% of its GDP in 2025.

France Budget Deficit and Debt-to-GDP 2024

(Click on image to enlarge)

Debt-to-GDP courtesy of Trading Economics, Deficit insert from https://countryeconomy.com/deficit/france

Financial Crisis in Europe With France at the Epicenter

Please recall my March 27, 2024 post Expect a Financial Crisis in Europe With France at the Epicenter

What’s the Basic Problem?

Eurointelligence says “Technology is the main cause of the decline. Geopolitics is what accelerated it.”

Technology is not the problem. The Maastricht treaty that created the Eurozone is flawed. And it cannot be fixed without unanimous agreement

The EU Is Dysfunctional

In a single word, the EU is dysfunctional. That’s the problem, not technology. The Maastricht treaty itself is a big part of the reason the EU is dysfunctional. The Euro itself, with one common interest rate, is fundamentally flawed.

France is Ungovernable

On July 7, 2024 I noted France is Now Ungovernable Following a Pyrrhic Victory for the Left-Green Alliance

I did not expect National Rally to win a majority, but nor did I expect a third place finish.

Success for Macron?

This was no victory for Macron who called snap elections. Macron’s Ensemble coalition currently has 249 members of the National Assembly.

After this “win” Ensemble will have 150-170 seats.

Macron will come to regret the elections.

Debt Brakes and Treaty Requirements

Hilarious. Le Pen appears on the horizon and suddenly the Commission opens up an "excessive deficit procedure" against France. Then they blame "excessive French power" in the EU. Is anyone fooled by this? They're using the ECB to bend political candidates to their will. 🇪🇺 https://t.co/u1YcZiCyvB

— Philip Pilkington (@philippilk) June 19, 2024

I discussed the above Tweet on June 21, 2024 in Debt Brakes and Treaty Requirements About to Smash the EU.

The EU has launched an Excessive Debt Proceeding against France. It won’t stop there.

Hoot of the Day

To achieve a government debt-to-GDP ratio of 60 percent, EU countries will have to reduce spending or raise taxes by 2 percent of GDP, on average, every year for 46 years.

That also presumes no recessions or other emergencies in that timeframe. And this is supposed to be a serious proposal.

Let’s just say it’s not going to happen. But these clowns are likely to try, if for no other reason than punish Le Pen.

Currency Crisis Awaits

Nothing has been solved because nothing can be solved. It’s politically impossible.

The French government is about to collapse again with France nowhere close to meeting debt brake and fiscal compliance rules.

If any party gets a majority in the next election, it will regret winning. No one is willing or able to address the mandatory rules.

I keep repeating the idea “a currency crisis awaits”.

However, things are so screwed up globally that a crisis can start anywhere. The EU, US, China, and Japan are all possibilities.

There is no fiscal sanity anywhere.

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