French Prime Minister François Bayrou faces a September 8 confidence vote on his 2026 budget plan as markets tumble and opposition parties unite against him [Image by Financial Times]
(The Post News)- Paris markets dived for a second day running on Tuesday as Prime Minister François Bayrou gambled his government’s fate on a September 8 confidence vote on his 2026 budget. The CAC 40 index dropped 2.2% before recovering slightly to close 1.5% lower. French 10-year bonds also fell, pushing the yield spread with Germany to its widest since April.
Andrea Tueni, head of sales trading at Saxo Banque France, said: “Investors now perceive France as being stuck in a political crisis with no way out.”.
Bayrou announced on Monday he would seek a confidence vote after his budget unleashed intense opposition. The budget aims to cut the deficit that was 5.8% of GDP in 2024 by €44 billion ($51 billion). The budget involves freezing welfare and pensions, keeping tax brackets unchanged, and eliminating two public holidays.
“Our country is in danger because we are sliding into over-indebtedness,” Bayrou said. He insisted that parliament, not street protests, should decide the country’s fiscal future.
United Opposition Against Bayrou
Opposition parties were quick to reject Bayrou’s plan. The far-right National Rally, the Socialists, the Greens, and France Unbowed all promised to vote against him.
“The government no longer has the confidence of parliament or the French people,” said Socialist Party secretary Pierre Jouvet.
National Rally chief Jordan Bardella was one of many who repeated the criticism: “We will never vote for a government whose policies are painful for French families.”
Defeat was predicted by political analyst Julien Hoez. “Even if Bayrou makes concessions, the opposition doesn’t trust him,” Hoez said.
French bank stocks led the sell-off. BNP Paribas, AXA, and Societe Generale all fell over 6% at some point. A Barclays index of companies sensitive to France’s domestic risks fell 4.4%.
Bond markets were also under pressure. French 10-year yields climbed to within a hair’s breadth of Italian levels, a sign that investors now view France as nearly as risky as one of Europe’s most indebted economies.
“The next milestone would be French yields overtaking Italy’s,” Tueni warned.
If Bayrou loses, President Emmanuel Macron must name a new prime minister or call snap elections. Neither move will fix France’s budget problems, analysts say.
“Either way, France’s deficit will remain above the level needed to stabilize its debt,” Capital Economics said in a note.
Macron has lost one prime minister, Michel Barnier, already to a defeated budget fight last year. With markets and the opposition in disarray, France may be sent into a fresh cycle of instability.
The French economy grew just 1.2% in 2024, against 1.4% in 2023. Economists believe new austerity steps would dent demand further without restoring investor confidence.
Reinout de Bock, UBS European rates strategy head, said Bayrou’s move “shocked markets” and added fresh uncertainty.
Wells Fargo strategist Erik Nelson said: “Bayrou may yet back down from unpopular policies, such as cutting public holidays, but investors see rising risks.”.
About the Author
