France’s President Emmanuel Macron welcomes European Commission President Ursula Von der Leyen as she arrives for a summit at the Elysee Palace, in Paris, on March 27, 2025. F
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Tensions are likely to be high in Brussels this week, as yet another political implosion in France leaves the country’s much-needed fiscal consolidation hanging in the balance.
The euro zone’s second-largest economy has repeatedly broken European Commission rules on budget deficits and debt limits, and successive prime ministers who have tried to fix the problem with proposed reforms, spending cuts and tax rises have been repeatedly ousted.
The latest martyr in Paris’ ongoing political deadlock — France’s fifth PM in less than two years — is Sébastien Lecornu, who announced his resignation on Monday after just 27 days in office.
His decision to step down came after he failed to get political rivals (and even allies on the center-right) to back his new government. He hadn’t even announced any 2026 spending or taxation plans yet, although budget wrangles between the government and rival parties were the undoing of previous administrations.
Signalling that he’s desperate to avoid losing yet another PM, France’s President Emmanuel Macron on Monday evening gave Lecornu 48 hours to devise a plan for the “stability for the country” and a way through the political deadlock.
Lecornu wrote on X that he will report to the president on Wednesday evening on any potential breakthrough “so that he can draw all the necessary conclusions.”
On Wednesday morning, Lecornu said the possibility of parliament being dissolved as a result of the crisis appeared to be “more remote” after a day of talks with different political parties, noting that there was a willingness to get a 2026 budget passed before the end of the year.
Whether serious cooperation between rival parties materializes remains to be seen, however, with those on both the far left and right smelling blood earlier this week, calling for Macron’s resignation and new parliamentary and/or presidential elections.
Fiscal rules left broken
Officials in Brussels are unlikely to want to appear to be interfering in domestic political affairs, but the pressure is on for Paris to embark on some serious fiscal consolidation — and fast.
France needs to close a budget deficit of 5.8% of GDP in 2024, and address a significant debt pile that amounted to 113% of GDP last year. This put France behind only Greece and Italy in terms of the European Union’s largest debt piles.
Both levels are far above EU rules demanding that individual members’ deficits should not exceed 3% of GDP, while their public debt should not surpass 60% of economic output.
France has been placed under the EU’s “excessive deficit procedure,” applied to member states that are not meeting the rules set out in the “Stability and Growth Pact.“
It has until 2029 to get its house in order, but there’s no sign that France will be able to meet its obligations any time soon.
CNBC has asked the European Commission for comment on the latest crisis and is awaiting a response.
“The question is how do you stick to those [EU] rules?,” Antonio Fatas, professor of Economics at INSEAD, told CNBC Tuesday. “Currently the deficit in France is clearly beyond the rules and it’s unclear whether France’s budget will get you within the rules in a short period of time, which is what the rules require.”
“Given the composition of the parliament, given the fragmentation, given the views of the extreme right and extreme left, it means that it seems very, very difficult to achieve a budget that lives by those rules,” he told CNBC’s “Europe Early Edition.”
While the EU may be prepared to kick the can down the road for now, investors might not be so willing to overlook France’s lack of fiscal discipline. The country has already suffered a ratings downgrade by Fitch last month, with Moodys widely expected to follow suit at the end of October.
Fix needed, fast
If Lecornu’s efforts over the next few hours fail, Macron will be faced with the choice of appointing a new PM, dissolving parliament and calling fresh parliamentary elections, or resigning. It’s currently unclear which option Macron will choose, although the latter option of resignation is considered highly unlikely.
In any scenario, economists say it’s unlikely there will be significant progress in reducing the country’s deficit or debt pile, with a growth slowdown expected too. In addition, the 2025 budget is likely to be rolled over into next year.
“Whatever the scenarios are we won’t have a proper budget by year-end,” Hadrien Camatte, senior economist for France, Belgium and the euro zone at Natixis, said Tuesday.
“So in terms of fiscal consolidation at this stage we see no very positive scenarios which means that the deficit is likely to remain close to the current level of 5.4-5.5% level for this year, and probably for next year, depending on the budget and macro data,” he told CNBC’s “Europe Early Edition.”
Goldman Sachs also said on Tuesday that likely “budget slippage” in France had led the bank to raise its 2025 budget deficit forecast to 5.5% of GDP.
Visitors shelter from the rain with umbrellas on the Parvis des Droits de l’Homme on Esplanade du Tocadero across from the Eiffel Tower, as remnants of hurricane Kirk cause heavy rainfall over Paris, on October 9, 2024.
Ludovic Marin | Afp | Getty Images
“First, we continue to expect growth to run below trend … Second, we still expect to see little progress with reducing the government deficit,” Goldman Sachs economists said in a note Tuesday, adding that “it also looks likely that France will start next year with a frozen (or at least partial) budget.”
“In any case, deep political disagreements, slower growth and higher borrowing costs are likely to prevent significant progress, and we are raising our 2026 deficit forecast by 0.1 percentage points to 5.3% of GDP,” they noted. Goldman also lowered its 2026 growth forecast for France, predicting a lackluster expansion of 0.8% next year.