Moody’s recent decision to downgrade France’s credit outlook underscores the urgent need to pass a budget that tackles the ballooning deficit. But without a parliamentary majority, Prime Minister Michel Barnier will have to overcome resistance from the left, the right, and within his own centrist coalition.
PARIS – Moody’s recently affirmed France’s credit rating at Aa2 but downgraded its outlook from “stable” to “negative,” highlighting the country’s unsustainable fiscal trajectory. The warning comes amid a fierce parliamentary battle over how to rein in the deficit, which has surged to nearly 6% of GDP – far exceeding all forecasts, including those issued by France’s finance ministry.
The reason for the ministry’s forecasting errors remains unclear. Were they the result of administrative upheaval caused by President Emmanuel Macron’s decision to dissolve the National Assembly and call a snap election? Or do they point to deeper flaws in the ministry’s forecasting models, such as an inability to anticipate tax revenues, especially from corporate taxes, during a period of high inflation?
Whatever the reason, these errors risk eroding confidence among France’s creditors. Another cause for concern is that neither the left, the center-right, nor the far right has come close to securing anything close to a parliamentary majority since July’s election. Without a clear majority, Prime Minister Michel Barnier’s center-right government could collapse at any moment – all it would take is for the left and far-right to unite on a no-confidence vote.
Moreover, the centrist bloc that ostensibly backs Barnier is beset by infighting, largely fueled by the presidential ambitions of prominent figures within the coalition. As a result, Barnier has faced a growing number of budgetary amendments and ultimatums from his own ranks.
On October 19, for example, Tourism Minister Olivia Grégoire, former Interior Minister Gérald Darmanin, and lawmaker Mathieu Lefèvre – all members of Macron’s Renaissance Party – published a commentary proposing that the French government sell 10% of its holdings in publicly listed companies, overlooking the fact that this move would have no impact on the real value of net public debt. Just a week earlier, these same politicians urged Barnier to rule out tax increases, a move that would undermine efforts to rein in the deficit and could have severe consequences for France’s credit rating.
Over the past two weeks, lawmakers have submitted nearly 3,500 budgetary amendments, with 1,200 of these coming from Macron’s own bloc, which of course shares responsibility for the growing deficit. Yet, amid this political turmoil, the seasoned Barnier has taken a measured approach, assuring parliament that he will not rush the process and repeatedly saying, “I’m listening.”
Not too long ago, Macron could simply instruct prime ministers to advance his agenda, with his majority in the National Assembly ensuring that it was enacted and implemented, regardless of public opinion. But the era of top-down decision-making is over. Nowadays, Macron must appease, negotiate, and compromise with various parliamentary factions.
Barnier has quickly adapted to the new political terrain. By allowing time for debates, avoiding unnecessary controversies, and maintaining a calm demeanor, he has underscored the recklessness of deputies caught up in endless squabbles, reinforcing his image as a leader committed to resolving the budget crisis and putting France back on the path to sustainable growth. So far, French citizens – tired of broken promises and political infighting – seem to approve: Barnier’s popularity has risen to a relatively high 39% in recent weeks, even as Macron’s has sunk to an all-time low of 25%.
In the long term, France will inevitably need to implement major structural reforms: overhauling the education and health systems, cutting bureaucratic red tape, and shifting from a majoritarian electoral system to proportional representation. But Barnier’s most urgent priority must be to secure parliamentary approval for a finance bill that takes aim at the budget deficit.
Passing such a bill will be no easy feat in an economic climate marked by rising unemployment, factory closures, and declining investment and consumer spending. This is why, in an effort to demonstrate goodwill and a willingness to compromise, Barnier has extended an olive branch to the left by proposing higher taxes on big business and the wealthy while moving to the right on immigration.
Despite these overtures, Barnier will likely have to invoke Article 49.3 of the French Constitution, which enables the government to bypass the National Assembly and pass a budget unless a no-confidence vote is called. To trigger such a vote, the left and the far right would need to unite in censuring Barnier – a scenario that seems highly improbable, given his recent concessions to both sides.
PARIS – Moody’s recently affirmed France’s credit rating at Aa2 but downgraded its outlook from “stable” to “negative,” highlighting the country’s unsustainable fiscal trajectory. The warning comes amid a fierce parliamentary battle over how to rein in the deficit, which has surged to nearly 6% of GDP – far exceeding all forecasts, including those issued by France’s finance ministry.
The reason for the ministry’s forecasting errors remains unclear. Were they the result of administrative upheaval caused by President Emmanuel Macron’s decision to dissolve the National Assembly and call a snap election? Or do they point to deeper flaws in the ministry’s forecasting models, such as an inability to anticipate tax revenues, especially from corporate taxes, during a period of high inflation?
Whatever the reason, these errors risk eroding confidence among France’s creditors. Another cause for concern is that neither the left, the center-right, nor the far right has come close to securing anything close to a parliamentary majority since July’s election. Without a clear majority, Prime Minister Michel Barnier’s center-right government could collapse at any moment – all it would take is for the left and far-right to unite on a no-confidence vote.
Moreover, the centrist bloc that ostensibly backs Barnier is beset by infighting, largely fueled by the presidential ambitions of prominent figures within the coalition. As a result, Barnier has faced a growing number of budgetary amendments and ultimatums from his own ranks.
On October 19, for example, Tourism Minister Olivia Grégoire, former Interior Minister Gérald Darmanin, and lawmaker Mathieu Lefèvre – all members of Macron’s Renaissance Party – published a commentary proposing that the French government sell 10% of its holdings in publicly listed companies, overlooking the fact that this move would have no impact on the real value of net public debt. Just a week earlier, these same politicians urged Barnier to rule out tax increases, a move that would undermine efforts to rein in the deficit and could have severe consequences for France’s credit rating.
Over the past two weeks, lawmakers have submitted nearly 3,500 budgetary amendments, with 1,200 of these coming from Macron’s own bloc, which of course shares responsibility for the growing deficit. Yet, amid this political turmoil, the seasoned Barnier has taken a measured approach, assuring parliament that he will not rush the process and repeatedly saying, “I’m listening.”
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Not too long ago, Macron could simply instruct prime ministers to advance his agenda, with his majority in the National Assembly ensuring that it was enacted and implemented, regardless of public opinion. But the era of top-down decision-making is over. Nowadays, Macron must appease, negotiate, and compromise with various parliamentary factions.
Barnier has quickly adapted to the new political terrain. By allowing time for debates, avoiding unnecessary controversies, and maintaining a calm demeanor, he has underscored the recklessness of deputies caught up in endless squabbles, reinforcing his image as a leader committed to resolving the budget crisis and putting France back on the path to sustainable growth. So far, French citizens – tired of broken promises and political infighting – seem to approve: Barnier’s popularity has risen to a relatively high 39% in recent weeks, even as Macron’s has sunk to an all-time low of 25%.
In the long term, France will inevitably need to implement major structural reforms: overhauling the education and health systems, cutting bureaucratic red tape, and shifting from a majoritarian electoral system to proportional representation. But Barnier’s most urgent priority must be to secure parliamentary approval for a finance bill that takes aim at the budget deficit.
Passing such a bill will be no easy feat in an economic climate marked by rising unemployment, factory closures, and declining investment and consumer spending. This is why, in an effort to demonstrate goodwill and a willingness to compromise, Barnier has extended an olive branch to the left by proposing higher taxes on big business and the wealthy while moving to the right on immigration.
Despite these overtures, Barnier will likely have to invoke Article 49.3 of the French Constitution, which enables the government to bypass the National Assembly and pass a budget unless a no-confidence vote is called. To trigger such a vote, the left and the far right would need to unite in censuring Barnier – a scenario that seems highly improbable, given his recent concessions to both sides.