France’s Prime Minister Francois Bayrou speaks during a press conference in Paris on August 25, 2025.
Dimitar Dilkoff | Afp | Getty Images
France’s minority government on Tuesday faced the prospect of collapse within weeks, after opposition parties said they would not back Prime Minister Francois Bayrou in a Sept. 8 confidence vote tied to his budget cut plans.
The Paris CAC 40 index was 1.4% lower in afternoon deals on Tuesday, after dropping more than 2% in early trade. French medium to long-term borrowing costs ticked higher, with the country’s 10-year bond yield up 2 basis points and its 30-year yield up 4 basis points.
France’s need to lower its public deficit is a long-running and highly politically contentious subject. Forcing through a 2025 budget without parliamentary approval last year led to the collapse of the previous minority government led by Michel Barnier. Political volatility has increased in France since the July 2024 parliamentary election failed to deliver any party or coalition a majority.
Bayrou is now seeking to pass a 2026 budget containing around 44 billion euros ($51.2 billion) in fiscal tightening, with his proposals including freezing welfare and pension spending, as well as tax brackets, at 2025 levels. He has also proposed cutting two public holidays in a highly unpopular move.
The government argues cutbacks are needed to tame a deficit which totaled 5.8% of gross domestic product in 2024 — a figure it says will continue to rise without action. The European Union states that its members should target a 3% deficit ratio in order to reduce excessive debt.
French economic growth has meanwhile been sluggish, cooling to 1.2% in 2024 from 1.4% the prior year.
Speaking to press on Monday, Bayou said France’s dependence on debt had become “chronic.”
“Our country is in danger, because we are at risk of over-indebtedness,” he said, according to a CNBC translation.
Bayrou said French debt had grown by 2 trillion euros over the last two decades, noting that the country had weathered events including the 2008 Global Financial Crisis, the Covid-19 pandemic, Russia-Ukraine war, inflation spike and most recently the impact of U.S. tariffs. He added that the budget dispute should be resolved through an orderly debate in parliament followed by a vote, rather than through “street clashes and insults.”
Comments by officials from the far-right National Rally, the Greens and the Socialists suggested no party will officially back him, risking government collapse.
Pierre Jouvet, general secretary of the Socialist Party, said on the X social media platform on Monday that the group would vote against Bayou, and that the government did not have the confidence of parliament or the French people. Jouvet added the party would present its own budget proposals in the coming days.
National Rally President Jordan Bardella said his party would “never vote confidence in a government whose choices make the French people suffer,” according to a CNBC translation.
Risk of collapse ‘not priced’
“Should the government lose the confidence vote, President Macron may seek to nominate a different Prime Minister to form a government, who would then face the immediate challenge of passing a 2026 budget,” analysts at Deutsche Bank said in a Tuesday note.
“Alternatively, Macron could call snap elections. Current polls point to another fragmented outcome as happened after the summer 2024 snap vote, though with the far-right [National Rally] leading in polls, investors would be watchful whether it could translate this lead into an outright majority this time round.”
Following the Monday news, the spread on Italian 10-year bond yields over France’s fell to 9.8 basis points, its lowest level since 1999, the analysts said — sign that investors are putting a similar premium on the countries’ political risk. In 2022, the spread was as high as 180 basis points.
Reinout de Bock, UBS head of European rates strategy, told CNBC’s “Europe Early Edition” on Tuesday that Bayrou’s call for a confidence vote was a “surprise” to markets.
“I think this is not priced at all, and it’s potentially a big story in the next couple of weeks,” he said.
“In Europe right now, it’s really about spending more than we had 10-15 years ago…The challenge for France is that they’re having a budget deficit [of] around 5.8% of GDP. That is the biggest budget deficit in the euro area, and there [are] open questions to what extent they will succeed in reducing spending.”
Bayrou could cling on
Erik Nelson, head of G10 FX strategy at Wells Fargo, called the outlook for French assets “not great” — but said the outcome for Bayrou’s government was not a foregone conclusion.
“I think part of the issue here is that European equities, the euro itself, have been a very popular momentum trade throughout the year. What we’re seeing in the last couple of days has been a little bit of unwind of some of the momentum trades that have been working, and so there is the risk there that we can see further unwind on some of these political risks,” he told CNBC’s “Squawk Box Europe.”
“I don’t know that Bayrou is definitely out. There’s still some uncertainty there. He’s got a lot of things he can offer the opposition.”
He noted that the French prime minister had previously threatened — and could now walk back — plans to remove some public holidays.
“Surely that’s going to be taken off the table. So it’s not a done deal, but they’re walking a very fine line here, and as I mentioned earlier, given where market positioning in European assets, there’s a lot of risks,” Nelson said.
However, political analyst and consultant Julien Hoez said it was “almost certain” that Bayrou would lose the vote.
“Despite Bayrou saying that all austerity measures were negotiable, the reality is that the opposition parties don’t trust him,” political analyst Julien Hoez told CNBC. Unsuccessful negotiations earlier in the year over reform of French President Emmanuel Macron’s controversial 2023 move to raise France’s retirement age in line with the Socialists’ demands fractured relations with the government, Hoez said.
No-confidence votes from members of the Greens, Socialists, far-left La France Insoumise and National Rally — as appears likely — would then tally up to 315 votes, well above the 289 needed to topple the government, Hoez added.
“The more important question is what happens after, with Macron having agreed to an extraordinary session of the [National Assembly] for this vote, which will show the impossibility of governing with the extremes in today’s configuration, and will actually be more of a push towards another election than any other outcome,” he said.
