Prime season: France's government crisis will damage the economy and affect aid to Ukraine

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A budget disaster

Unsurprisingly, the approval of a 2025 budget proved too daunting a challenge for former French Prime Minister Michel Barnier, who took office amid a political crisis in early September. Barnier had very little time to draft and discuss the budget bills in parliament, as the composition of the new government was only announced on Sep. 21. By Oct. 11, the draft budget was already being presented in the National Assembly.

The tight timeline placed on drawing up the document was largely the fault of President Emmanuel Macron, who did not wish to cede the government to leftists. After the early parliamentary elections he had initiated were held in June, the president spent two additional months scheming before finally coming up with a suitable coalition.

In record time, Barnier's cabinet had to propose a draft state budget capable of addressing the country’s deficit — which by December amounted to 6.1% of GDP instead of the 4.4% planned for 2024. Deficit growth beyond the European “norm” of 3% had already prompted the European Commission to issue a warning to France this past summer.

The Barnier government found it impossible to win parliamentary support. After the summer elections, the government featured three large but non-majority blocs, and the prime minister needed to garner the support of at least two. To that end, he flirted with the right-wing populists and even appointed as his interior minister Bruno Retailleau, who had previously called for a referendum on banning migration. (The Insider detailed his proposals in an earlier piece.)

Under such circumstances, the government sought not only to pass the 2025 budget but also to revitalize the economy by reducing the deficit to 5% of GDP in 2025 and putting the country on track to reach the 3% EU target by 2029. It planned to cut spending by 60 billion euros next year: 40 billion in public spending cuts and 20 billion in additional tax revenues.

Where did France's deficit come from?

With annual GDP growth expected to measure 1.1%, France's economy was not in crisis in 2024. The country’s 7.3% unemployment rate is the lowest in 40 years. Therefore, the increase in the state budget deficit and public debt (112% of GDP, or 3.2 trillion euros) raises questions. The government explains the imbalance with reference to slumping tax revenues caused by a lack of growth in consumption, a stagnant real estate market resulting from higher-priced loans, and a decline in business profitability leading to a drop in the collection of corporate taxes.

Nevertheless, the authorities are reluctant to cut public spending, which amounted to 58% of GDP in 2023 and remains the largest in Europe — in part because of the French social security model.

A jab from the right

During the budget debate, Marine Le Pen leveraged her power over the Barnier government and frequently invoked “red lines.” Her National Rally opposed delaying the indexation of pensions, protested the government's intention to reduce the reimbursement rates for some medicines and healthcare services, and was generally unhappy with the proposal to preserve social contribution exemptions for employers. The National Rally's “counter-budget” instead suggested making cuts in spending on immigrant services and reducing France's contributions to the EU. Le Pen's supporters, however, did not emphasize these points in the “red lines” debate.

Some of Le Pen's “red lines,” such as the demand not to raise the electricity tax, concerned the state budget directly, and the government's response to them played a role in the National Rally's vote regarding confidence in the cabinet. For this reason, Barnier was forced to heed the demands of the far-right — and even admitted in government press releases to doing so.

In the end, pension indexation became the stumbling block in Barnier's bargaining with Le Pen. The extreme right were not satisfied with the proposed compromise to index pensions by 0.8% (half of the inflation rate) early in 2025 and by another 0.8% six months later for pensioners whose income is below the minimum wage. Le Pen's struggle over this item is a nod to older voters, who have been increasingly supportive of the far right in recent years.

During the budget discussions, it became clear that it would be nearly impossible to get a solid deal with Le Pen’s forces. Barnier's entourage complained that after each concession, the National Rally leader simply made more demands. Meanwhile, the left, which already disliked Barnier, became increasingly frustrated by the fact that the government was negotiating only with the extreme right.

The Le Pen trap

Barnier's last attempt to get out of Le Pen's trap and pass a “social” budget bill was to invoke Article 49.3 of the Constitution. The government realized that their fate depended on Le Pen's decision — a political reality that she never passed up the chance to remind them about. But the prime minister still hoped she “wouldn't dare” help to vote him out.

“It's up to you to decide whether our country will accept responsible financial documents that are necessary and beneficial to our fellow citizens. Otherwise, we will enter the territory of the unknown,” Barnier admonished MPs at the National Assembly meeting on Dec. 2.

After the prime minister's speech, New Popular Front representatives declared no confidence in the government and left the session hall. The far-right promised to initiate their version of the vote and support the left. At a Dec. 4 meeting, the “carp and rabbit alliance,” in the words of Interior Minister Bruno Retailleau, dismissed the government by 331 votes.

Since the start of France’s Fifth Republic in 1958, parliament has put the question of confidence in the government to a vote more than 130 times, but before the Barnier government, only one cabinet had resigned in this way — during the 1962 Algerian War crisis.

Living without a budget

A few days later, Emmanuel Macron named François Bayrou, another centrist and a veteran of French politics, as his new prime minister. Having held several ministerial posts in a variety of French cabinets, Bayrou, 73, is no stranger to compromise. He has run for the French presidency three times, finishing third in 2007.

In all likelihood, Bayrou's political background will help him find common ground with the diverse and hard-to-control French parliament. However, even if a new government is formed in the coming weeks, it won't have time to pass a budget before the New Year. The political crisis that has continued since last summer threatens to exacerbate France's financial problems well into 2025.

Nevertheless, France is not risking an American-style shutdown of all government institutions, as Emmanuel Macron promised to apply a “special law” in mid-December: until the new budget is adopted, state funding will continue to be allocated according to last year's budget.

The measure will hit the country's armed forces the hardest, as France intended to boost its military spending in 2025. The armed forces budget is governed by the military planning law enacted in 2023 for 2024-2030, which adjusts the amount upward each year. In 2025 the army was slated to receive an additional 3.3 billion euros, but it will be forced to live on a 2024 outlay until a new state budget is adopted.

According to Defense Minister Sebastien Lecornu, “the 2024 budget extension means a net loss of 3.3 billion euros for the armed forces.” Lecornu adds: “It could slow our rearmament at a time when the rest of the world won't be waiting for us.” France will face challenges in areas other than its defense capability: “Most of the aid to Ukraine is provided by selling the French army's old equipment and replacing it with new items, which has been made possible precisely by the new budget limits. A slump in orders for new equipment will inevitably slow down deliveries to Ukraine.”

No wonder that Lecornu criticized MPs on the eve of the no-confidence vote for acting irresponsibly. Without a budget, France cannot guarantee contracts for defense industry companies, cannot pay raises for military personnel, cannot reach its targets for military recruitment, and cannot fulfill its modernization plans. In particular, this will affect the timeline for the construction of a new aircraft carrier to replace France's only vessel of this type, the Charles de Gaulle.

It's all Macron's fault

Both the right and the left wing of the opposition place the blame for the government crisis on President Emmanuel Macron, whose decision in the summer split the parliament into three hostile camps and made the country ungovernable. The most implacable opponents of Macron's policies — including Jean-Luc Mélenchon, leader of the left-wing La France Insoumise party — are demanding the president's resignation. The French nation largely shares Mélenchon’s sentiment: according to a recent poll, 59% would like Macron to resign.

Addressing the nation on Dec. 5, the French president rejected these wishes and announced his intention to serve out his term in full: “My responsibility requires ensuring the continuity of the state, the proper functioning of our institutions, our country's independence, and protection for all of you.” Macron also promises that the new centrist prime minister Bayrou will form a “common ground” government, one representative of all political forces — except for the extreme left and extreme right.

There is little hope for that, though. Despite Bayrou's vast political experience — he served as a minister of justice and a minister of education and led the MoDem party for many years — the left are already threatening a vote of no confidence in him as well. Additionally, he has an old grudge against Marine Le Pen, and the far right is unlikely to endorse a prime minister who does not cooperate with them the way Barnier did until the alliance became untenable.

In this regard, a better alternative to head the government would have been former Interior Ministry head Bruno Retailleau, but he was not Macron's choice. As a result, France is in for a long political winter— and a budget crisis. The approval of the new government in parliament does not promise to be easy, and early parliamentary elections loom on the horizon yet again.